More bank employees and customers are coming forward with stories of unethical practices and harmful financial recommendations dubbed ‘advice’ in Canada’s big banks. None of this is new, similar practices were rampant in the 1920’s leading up to the financial crash and depression thereafter. As well as in the Savings and Loan Crisis of the 1980s, that led to more than 1000 bank failures and several hundred arrests and bankruptcies.
But beware, non-bank financial conglomerates will be using this wave of bank revelations to promote their services as ‘independent’ because not bank owned. Make no mistake: the lion share of other mutual fund, insurance, broker/dealers dispensing financial products and recommendations in Canada today, are just as aggressive, sales-focused, self-serving and financially harmful, as the banks. In many cases, their fees (embedded and otherwise) are even higher than in bank products. What makes banks particularly harmful, is that they are given privileged inside access to see the cash we hold in our bank accounts and the equity we may hold in our homes, by virtue of them being our bank. On top of that, we the taxpayers, are expected to backstop banks who get into financial trouble through reckless financial practices. So they literally hold us financially hostage, in the present system.
This problem of profit-maximizing practices, parading as professional advice is across the financial sector and worldwide. It is even present in many buy-side or fiduciary asset management companies, where the firm collects a higher fee percentage on client funds that are allocated to equity and other so called ‘hi-yield’ products like preferred shares and corporate debt, rather than government bonds, GICs, cash and the least risky deposit instruments. The urge to collect higher fees, often naturally pushes advisors to recommend a higher risk exposure than may be desireable for a client’s capital. This is especially dangerous, late in each market cycle, where like now, asset valuations are at historic highs, and ‘buy and hold’ firms mandate a perpetual exposure to risky assets despite the high probability of deep capital drawdowns that take years to recover, if they do at all, in the client’s finite lifetime.
The first part of the fix is to stop financial product underwriters and sellers from calling themselves advisors, while separating taxpayer-backed deposit-taking institutions, from those who create and sell securities. This separation was done in the 1930’s and then rolled back again as memory faded in the 1980’s and ’90’s. A very costly mistake, the re-consolidation helped usher in the Great Financial Crisis of 2008, and the global debt crisis that has compounded in severity since. This is why we must reinstate Glass-Steagall divisions as already proposed in 2013.
In emails to Go Public, past and present call centre employees for TD, RBC, BMO and CIBC (none from Scotiabank) said they’re expected to use the same high-pressure sales tactics as those their branch colleagues recently revealed to CBC News — and face the same threat of being fired if they fail to consistently upsell customers. Here is a direct video link.
Also the CBC did another radio call in show on unethical sales tactics in Canada’s big banks. Here is a direct audio link.