When we look at the popular culture of late, you’d think that the big banks were robbing the poor to feed the rich.
Just look at the premises of recent American movies ‘The Big Short’ and ‘Going In Style’ – where big financial institutions are being blamed for the fall of the little guy. And we have the recent headlines exposing Canadian banks of using aggressive sales tactics to hit financial product sales targets.
Let’s be clear. Banks are in the business of making a profit – and they’re good at it. They are not charitable organizations whose only interest is doing right by their customers. They are as likely as any other business to mislead and mistreat. What’s surprising is the higher standard Canadians seem to have regarding their banks’ business practices.
There’s nothing evil about McDonald’s offering to up-size our meal order, but when a bank is exposed for doing something similar, shock and awe are the resounding reactions.
Banks sell financial products – that’s how they make most of their money. It might be a chequing account at $14.99/month; it might be a GIC offering 2%; it might be a line of credit at 4.9% or a credit card at 19.9%; it might be a mortgage at 2.7%. These are all financial products – all with profitability associated with them. And the more they sell, the more profitable the banks are. And it adds up to more than $35 billion a year among them, which means they’re good at it.
So yes, banks sell financial products, and they sometimes push the ticket in terms of their tactics, and how they motivate staff to achieve their goals. They may be aggressively selling – and the issue isn’t that they are selling products – it’s that they are taking advantage of customers’ lack of financial literacy in doing so.
Many Canadians believe that banks will always do what is in the clients’ best interest – that they should take their bank’s advice in making their financial decisions. While there may be some fiduciary responsibility in how banks assist clients, I cannot count the number of times I have shaken my head at a bank’s recommendations to their unknowing clients.
My simple advice – Talk with your feet. Don’t berate a teller or any bank employee for doing their job. If you’re not happy with your bank’s products, fees or practices, don’t be complacent and give them the benefit of the doubt by letting them keep your business. Educate yourself, consider the alternatives, and reward the most innovative and best (not the biggest) financial institutions with your business.