Is good investment advice possible at the bank?

I'm happy to say that after a brief, compliance inspired break from blogging I am back in the business of giving you the dirt.


Is good investment advice possible at the bank?

Most Canadians are not too fond of banks. I think this stems from the perceived lack of banking options, the high fees and the poor advice and the questionable products pushed on Canadian customers.

The first two complaints about Canadian banks used to be an issue, the lack of choice and high fees. However, in the aftermath of the meltdown in the states your banker can simply reply to any complaint with the devastating, “well you could always put your money into an American bank.” Implying, that the lack of choice and service is justified. At least the Canadian bank loses your money slowly instead of in one fell swoop.

The third general customer complaint about service and product advice is a little harder to deal with for the average banker because it is a common conflict of interest. Your average banker may not be paid to do what is in your best interest but rather to hit their numbers for the month.

For example, let’s suppose that you have some extra money and you are interested in investing. You are considering investing in;

• a Canadian equity mutual fund
• a risk free GIC
• a percentage of both

You have been dealing with a banker named Shelly for a few years and make an appointment to see her to help you with this decision. When you see Shelly she recommends the GIC option because “mutual funds are risky.” You agree since this is the bank, she is a banker and she is, therefore, the expert. So you sign the papers, lock in your GIC for the next 3 years at 1.5% and promptly miss out on a 24% rise in the TSX. Did you get the best advice?

It’s possible you did get good advice but it is also likely that the investment advice was biased.

What you and many other Canadians may not realize is that most bankers are not good at or are not licensed to provide investment advice. If fact, only about 25% of the staff at a bank may be licensed to sell mutual funds. Generally their titles might be “financial advisor” or “mutual funds advisor” or something similar. The front line staff, the lenders and the even the bank manger may have little to no direct experience at providing investment advice on anything other than GICs. So unless you talk to one of the investing specialists chances are you are going to end up with a GIC. Because bankers, like Shelly, investment licensed or not, still have to hit their sales targets.

It is possible that Shelly could refer you to the investing specialist because it is the right thing to do. In fact most banks espouse the “let’s do what’s right for the customer” mantra. However, in my experience doing what is right for the customer usually come in at a distant fourth to;

1. How close Shelly is to her sales target. She may not be rewarded for a referral as opposed to a sale.
2. Whether Shelly hates the guts of the investing specialist or not
3. How much time she had before lunch to do the paperwork (GICs = quick and easy, mutual fund referral = pain in the ass)
4. The customer’s best interest

If you are going to get financial advice at the bank make sure you make an appointment to speak to an investing specialist not just any banker. This specialist should have an investing designation such as Certified Financial Planner (CFP) or Chartered Financial Analyst (CFA).

Believe it or not I do know a few excellent, bank level financial planners and investing specialists.
So good advice does exist. Look for someone knowledgeable, passionate about investments and financial planning and honest. If you find a good planner, stick with him or her. You are much more likely to get good unbiased advice from someone you have developed a relationship with.