Retail banking is increasingly about selling stuff – and that can be a problem, says one of Canada’s federal financial watchdogs.
“Banks are in the business of making money. We know that. But the way they sell financial products and manage employee performance, combined with how they set up their governance frameworks can lead to sales cultures that are not always aligned with consumers’ interests,” Lucie Tedesco, commissioner at the Financial Consumer Agency of Canada (FCAC), said in a statement accompanying the release of an in-depth review of retail banking in Canada.
The FCAC combed through 4,500 complaints related to sales practices involving Canada’s six largest banks (Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, National Bank of Canada, Royal Bank of Canada and Toronto-Dominion Bank). It scoured 100,000 pages of documents, including about how banks handle training and performance and police themselves. And it interviewed some 600 bank employees from CEOs and board members all the way to staff who deal with consumers on a daily basis.
What it discovered is not pretty.
Here’s what you should know as a consumer based on the report’s main findings:
Your best interest doesn’t necessarily come first
There’s a growing risk of “banks placing their sales interests and targets ahead of their customers’ interests,” according to the FCAC. This is because processing transactions and customer requests is an ever-shrinking part of the job of working at a bank branch. With consumers increasingly doing their routine business through online banking, apps and ATMs, branches have instead turned into “‘stores’ dedicated to providing advice and selling products,” writes the FCAC. The same goes for call centres.
“Today, most branch employees are either directly involved in selling financial products and services to consumers or have a responsibility to identify sales opportunities and refer consumers to branch employees who are dedicated to sales. Increasingly, call centre employees are required to sell banking products and services in addition to their role of providing customer service,” reads the report.
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Canadian banks talk the talk, with senior management advocating “selling the right way and acting in the interests of their customer,” the report finds. In practice, however, they tend to reward whoever sells the most. Employees who meet and exceed sales targets enjoy anything from pay bonuses to perks like small-value gift cards and all-expenses-paid holidays.
In general, employees who fall short of achieving sales goals receive additional coaching and training. Those who do, tend to move up, according to FCAC.
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When to be extra wary of sales pitches
There is an increased risk of dubious selling practices in these cases, according to the FCAC:
- Mobile mortgages. Did someone show up at your door to sell you a mortgage? Proceed with caution. Banks are relying on so-called “mobile mortgage specialists” (MMS) to help sell mortgages by “going out in the community to meet clients and business contacts.” Compensation for MMS is 100 per cent commission and bank supervision of their conduct is “less intense,” according to the report. “In some instances, banks sell upwards of 90 per cent of their mortgages through this channel,” the FCAC noted.
- Add-on sales pitches. You just signed up for a new product, say a mortgage, at your longtime bank branch and now you’re asked whether you’d also like to purchase some other product, say mortgage insurance. This is something called cross-selling. And although there are benefits associated with the practice – as customers may learn about useful products they didn’t know about – it “may also result in the sale of unwanted or unsuitable products or services,” said the FCAC.
- Creditor insurance. This is a type of insurance that’s meant to pay off or reduce your credit balances should you die, lose your job or face other adversities that would make it difficult to keep up with your debt payments. The catch is that coverage is typically subject to a number of exclusions, and, often neither customers nor those selling the product are fully aware of the fine print, according to FCAC.
- A sales pitch for a bank product that doesn’t come from a bank. Banks have outsourced the sale of certain products to third parties, which aren’t necessarily as closely watched as their own employees, according to the FCAC. Also, “third-party sellers and their sales staff are often limited to selling one product or one type of product, such as travel rewards credit cards at airport kiosks or creditor insurance in outbound call centres.” Third-party sellers, in other words, have only one way to meet sales targets, which increases the pressure to sell the product — no matter what.