Beware sales pitch behind banks’ advice
Remember that banks are not your friends, they want you money.
Thursday, April 07, 2011
Whatever your branch recommends, do your homework. Remember that banks are essentially sales operationsROB CARRICK
Friendly faces in a depersonalized, online world – that’s your local bank branch for you.
Branch staff are glad to talk about your financial situation, be it debt, saving or investing. They’re also eager to sell you stuff, so it’s important to know how to talk to bankers before you go in.
Online banking is flourishing in Canada, as well it should because it’s cheap and convenient. But there’s a back-to-the-branches theme to a lot of what the big banks are doing today. There are now 300 TD Canada Trust branches open Sunday. Bank of Montreal is installing free coin-counting machines in its branches to draw people in. Canadian Imperial Bank of Commerce has just begun a marketing campaign that talks up CIBC as the place to go for financial advice.
Bank branches today are much less places to cash cheques and pay bills than they are sales centres for mutual funds, mortgages and lines of credit. Just recently, CIBC said consumer lending is the main driver of its growth plans.
One way to lend more is to attract new clients, something CIBC is trying to do through its Switch campaign. The basic idea is for people who deal with other banks to come over to CIBC for what it described in a news release as “expertise, advice and innovation.”
This represents a new phase in bank strategy. It’s no longer “come into our branches for advice,” but “our branches give better advice than their branches.”
I asked people in my Facebook community (http://on.fb.me/fvo80W) how much they rely on banks for advice and the response was on the whole quite anti-bank. But there’s a point here that may have been missed. People are becoming increasingly aware that they need to cut debt and save more, but lots don’t know how to do it. Banks can help.
Go get that help if you need it, but don’t go in uninformed.
First, you have to understand that banks are essentially sales operations. We have lifelong relationships with our banks, we share private details with them and we sometimes depend on them in moments of stress or hardship. But banks place service to clients in the context of generating revenue and profit for shareholders.
You may hear the word adviser used in the branch, but that’s just a euphemism for salesperson in most cases. Some branches now include people with serious financial planning credentials such as Certified Financial Planner (CFP) or Personal Financial Planner (PFP), but even they’re subject to work rules that suggest it’s all about the sale, not the advice.
Beware of bank products that are highly packaged rather than straightforward. Wrap products are a great example. The banks are selling these prefab bundles of mutual funds like crazy today and it’s not because they’re better than building your own portfolio by selecting individual funds. Rather, it’s because wraps often result in a higher-fee mix of funds than having a customer choose funds individually.
Bank mutual fund families include some top-notch products, so don’t dismiss them. But be wary if you notice a conversation with your banker turning into a sales pitch to buy in-house funds. Be aware that you can open up an account with your bank’s online brokerage division and buy any company’s mutual funds, as well as lower-cost exchange-traded funds, stocks, bonds and term deposits with higher rates from other banks.
Whatever your bank recommends you buy or do, ask for hard numbers to document any advantage to you. Then, ask to have the same analysis applied to alternative approaches. When you’re done talking, go home and do your own research. Be sure the rates your bank is offering for both savings and borrowing are competitive.
Why see a bank at all for help with financial matters? One reason, frankly, is that going to a bank for advice is better than living in a state of uncertainty and inaction. Yes, it would be ideal if everyone who wanted advice used an independent financial planner or investment adviser, but that’s just not happening. If the familiarity of a bank branch makes someone comfortable enough to ask for help, so be it.
It’s also worth noting that the best way for banks to sell products is to keep customers and build relationships. Self-interested sales pitches disguised as advice are relationship killers.
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TALKING TO BANKS
Tips for those seeking financial help from their bank:
1. Receiving advice of any sort does not mean you have to settle for less than ideal rates on borrowing and saving products.
2. Use the vast resources of the Internet to double-check the rates and advice your bank offers.
3. If it’s all about buying the bank’s mutual funds, flee (unless you specifically came in to buy funds).
4. Get in writing whatever your bank is offering you.
5. Be open-minded enough to recognize that you can get good advice from a banker.