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If Your Bank Manages Your Investments, Hold Your Wallet


In 2016, the scandal over fake accounts created by Wells Fargo employees shocked anyone who reads the newspaper. For years, the bank had a pristine reputation due to a very sizable investment from Berkshire Hathaway’s Warren Buffett and the fact they said it could survive without tapping into the Troubled Asset Relief Program during the 2008/09 financial crisis.


Nevertheless, customers began to notice unusual fees; not to mention receiving documentation about accounts opened that they did not remember requesting. It was subsequently determined that 85,000 fake accounts were opened over a good period of time.


Years later, the bank continues to face legal challenges for its practices and Berkshire Hathaway sold out of its position.


Canadians expect that to happen only south of the border. But, don’t be mistaken. Our banks are guilty of the same malfeasance.


In 2017, the CBC reported that “employees from all five of Canada's big banks have flooded Go Public with stories of how they feel pressured to upsell, trick and even lie to customers to meet unrealistic sales targets and keep their jobs.” (click here to read the story).


In 2018, following an investigation, a Newswire headline said: “[Financial Consumer Agency of Canada] finds no widespread mis-selling”. (click here to read the story)


In 2019, the CBC further reported that:


Last year's report from Canada's banking regulator about aggressive sales tactics underwent several drafts that eliminated proposed protections for consumers — edits that were made after the regulator sent early versions to the federal Finance Department and the big banks.


Internal documents from the [FCAC] — obtained under Access to Information and provided to Go Public — show that some recommendations for action were weakened or removed, including a proposal to require that banks work in the best interest of consumers.


Another key edit was the addition of a line saying the review did not find "widespread mis-selling" by the banks.


It all paints a picture of the "cosy" relationship between the country's six big banks, the agency that's supposed to regulate them and the federal government, said Paul Thomas, professor emeritus of political studies at the University of Manitoba.



While new regulations have addressed conflicts of interest and suitability, aggressive sales practices still run rampant. Just because greater disclosure of costs is soon to become law, the average client is inundated with information when a new account is opened and throughout their relationship with a money manager. Few look at the endless mountain of paper they receive.


Speaking of Warren Buffett, his business partner Charlie Munger has said “show me the incentive and I'll show you the outcome”. Bank advisers are typically paid an annual bonus to hit their sales targets.


Their own self interest can motivate some (though not all) bank advisers to push a client into a high margin product.


Just last month, our firm moved over several very expensive mutual funds (which were sold immediately) that accompanied a high fee unknowingly to our clients. This happens because advisers are not held to a fiduciary standard, which requires putting the client’s interest first. Instead, they simply need to ensure the investment is “suitable” for the client.


Regardless of what the law says, we behave with a fiduciary duty to put our clients’ best interests before our own.


-Jeff Pollock


DISCLAIMER: The opinions expressed in this publication are for general informational purposes only and are not intended to represent specific advice. The views reflected in this publication are subject to change at any time without notice. Every effort has been made to ensure that the material in this publication is accurate at the time of its posting. However, Schneider & Pollock Wealth Management Inc. will not be held liable under any circumstances to you or any other person for loss or damages caused by reliance of information contained in this publication. You should not use this publication to make any financial decisions and should seek professional advice from someone who is legally authorized to provide investment advice to assess your goals and objectives, personal circumstances, and make an informed suitability assessment.

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