If you're investing through one of the

big Canadian banks, you will want to

watch this video. Investigative

journalism, research from Canadian

regulators, and academic research all

suggest that banks are more focused on

selling products that are good for the

bank than on giving advice in the best

interest of their customers. The result

is that Canadians taking advice from

their banks, as many Canadians do, are

often being sold suboptimal, high fee

products by salespeople with limited

expertise in portfolio management and

financial planning. This is a problem

worth addressing. I'm Ben Felix, chief

investment officer at PWL Capital, and

I'm going to tell you how the sales

culture at Canadian banks may be

affecting the advice bank financial

adviserss provide to Canadians.

[Music]

I do want to be clear that we are

talking about retail bank branches.

Think about walking into a bank branch

and asking to meet with a financial

adviser in the branch. I also want to

mention that the information in this

video does not mean that there are not

some good financial adviserss working at

bank branches. I know they do exist

because my firm PWL Capital has hired

some of them. The incentive structure

and sales culture within banks rather

than the advisers themselves seem to be

a big part of the problem that I'm going

to highlight in this video. In a March

2024 investigation, CBC News found that

customers at Canada's big five banks,

TD, RBC, Scotia Bank, Beimo, and CIBC

were being pressured to buy financial

products they did not need. And the bank

employees were being told to push those

products and services to meet sales

targets or risk losing their jobs. The

result is that bank employees were found

to be giving questionable advice like

telling people to invest in the bank's

mutual funds or GIC's instead of paying

off highinterest debt, misrepresenting

the importance of mutual fund fees to

expect investment outcomes, and

upselling customers on more expensive

financial products. Bank employees

really don't seem to be malicious based

on the CBC investigation. Some of them

who are interviewed by CBC News are

stressed out by the pressure to sell at

all costs. Based on some of the comments

by bank financial adviserss on mutual

fund fees and expected returns, I

suspect that beyond conflicts of

interest, a lack of education

contributes to the quality of advice.

Some of the bank financial adviserss

captured by CBC's investigation did not

seem to know how mutual fund fees work

or had unrealistic return expectations

for mutual funds. One adviser even said

that mutual fund fees are nothing to

worry about, which is of course not

true. This CBC investigative reporting

is based on a relatively small sample

and one could argue that it may not be

representative of typical bank financial

advice. In November 2024, in response to

CBC's reporting, the Ontario Securities

Commission and the Canadian Investment

Regulatory Organization teamed up to

coordinate a more systematic review of

the sales practices at bank affiliated

mutual fund dealers. They conducted a

voluntary anonymous survey sent to all

mutual fund dealing representatives

working in one of the bank branches at

five of Canada's bank affiliated mutual

fund dealers in Ontario. The survey

asked bank mutual fund representatives

about the sales environment, sales

pressure, and product availability in

their bank branches and also asked

questions designed to assess the

knowledge of the representatives. It was

completed by 2,863

respondents, offering a much broader

cross-section than CBC's reporting. The

results did not show significant

differences across banks or regions,

leading the study's authors to suggest

that the results and implications of the

analysis are applicable across Ontario

and across all five of the big bank

affiliated mutual fund dealers. You can

basically assume that the research

applies to most bank financial

adviserss. An interesting aspect of the

report is that it details the average

bank mutual fund representative. Based

on the survey sample, on average, they

hold one professional designation or

credential, commonly the Canadian

Securities Course or an equivalent,

which is the bare minimum to sell mutual

funds in Canada. They have six years of

work experience as a mutual fund

representative. 10% of their total

compensation is variable, including

things like bonuses and profit sharing.

And they typically offer other financial

products, including mortgages, lines of

credit, credit cards, bank accounts, and

GIC's in addition to mutual funds. Only

9% of representatives hold other

credentials, most often the CFP, and

those representatives are more likely to

offer planning based services. The main

results of the survey are wild. 32% of

representatives agree that the way

representatives are compensated places

more value on sales volume than on the

quality of advice given to clients.

About half of representatives, 47%,

strongly disagree that the way they are

compensated could create an incentive to

prioritize sales goals over client

interests. Well, 34% agree. One in three

representatives agree that the way they

are compensated could create incentives

for representatives to prioritize sales

and revenue targets over client

interests. And 35% of representatives

agree that the way they are compensated

may increase the risk that

recommendations made to clients are not

suitable for those clients. I think most

people would expect this type of

incentive system when buying a car, but

not for financial advice. 68% of

representatives say they experience

sales pressure at least sometimes and

35% experience it often or always. 44%

agree that there is a fear of job loss

due to not being able to meet sales,

revenue, client or asset targets. 23%

agree that there is high pressure to

sell potentially unneeded products or

services to clients. And 25% indicate

that clients have been recommended

products or services that are not in

their interests at least sometimes. If

you're a consumer of bank financial

advice, that is a scary statistic. 25%

of bank mutual fund representatives

surveyed said that clients have been

sold products that are not in the

client's best interest, at least

sometimes. The study does also find an

unsurprising relationship between sales

pressure and advice not in the client's

best interest. Representatives who

reported experiencing higher levels of

sales pressure were more likely to agree

that clients have been recommended

products or services that are not in

their interests. A majority, 55% of

respondents reported having concerns

related to sales pressure at least

sometimes, while 25% reported having

these concerns often or always. A large

portion of these concerned

representatives are reluctant to raise

their concerns at their workplace due to

the fear of reprisal. And of those that

have raised concerns, 43% of them

indicated that their concerns were

addressed rarely or never. All things

considered, the results show that most

of the mutual fund representatives

working for one of the big five banks

have at minimum some concerns related to

sales pressure in their roles. Many of

them are reluctant to raise these

concerns in the workplace. And among

those who have voiced their concerns,

nearly half of them feel that their firm

has not appropriately address their

concerns. Sales pressure is definitely

one thing that bank customers should be

deeply concerned about. But even in the

absence of sales pressure, many bank

mutual fund representatives are simply

limited in the investment products they

can offer. Bank advisers are often

limited to using bank funds. This makes

sense for the bank, but not necessarily

for their clients. 78% of

representatives surveyed say that their

existing range of product meets the

needs of their clients, but almost half

of them do agree that clients would

benefit if they could be offered a

broader range of mutual funds, including

mutual funds from providers other than

the bank. This just makes sense. A

bank's mutual funds, which are often

going to be high fee actively managed

funds, might be useful in some cases

maybe, but it's hard to argue that

limiting the available products to the

bank's funds is a good thing for

clients. This Canadian regulatory study

is supported by past academic research.

A 2018 paper in the Review of Financial

Studies uses data from a large retail

bank to analyze how banks and their

financial advisers generate profits from

customers. The authors find that

transactions initiated by bank advisers

earn the bank higher profits than

independently executed trades placed by

the same client. Unsurprisingly, the

bank's own mutual funds and structured

products are the most profitable

products for the bank. Bank profits

increase with trade size and bank

advisers recommend transactions that are

profitable for the bank. If these

profitable transactions were also making

clients better off, it would be easy to

argue that there is no issue here. But

the research finds that bank advised

clients have worse performance than

unadvised clients, suggesting again that

advisers put the bank's interests before

the clients. I want to mention again

that these issues are more with the

incentive structure and the sales

culture at the banks than with the

advisers themselves. I don't think bank

financial advisers are malicious even if

they are affected by conflicts of

interest. Their knowledge levels may

also be affecting their ability to

identify the conflicts and other issues

with their advice. About 80% of

representatives in the regulatory study

believe that their peers are

sufficiently knowledgeable on a variety

of financial topics, but onethird of

representatives reported that clients

have been provided with incorrect

information about products or services

being recommended to them at least

sometimes. And 23% of representatives

were unable to correctly identify the

definition of a management expense ratio

or me, one of the most important

attributes of a mutual fund. This also

lines up with academic research. The

2021 paper, the misguided beliefs of

financial adviserss, published in the

journal of finance, finds in a Canadian

sample of financial adviserss and their

clients, that advisers typically make

the same mistakes personally as they do

in their client accounts. They trade too

much. They chase past returns. They

prefer expensive, actively managed

mutual funds and they underdiversify

their portfolios. The advisers's

personal accounts underperform just as

poorly as their clients. The study also

shows that advisers continue to make

these mistakes after they leave the

financial services industry, suggesting

that they weren't just putting on a show

to convince clients to buy higher fee

products. They really believed in the

bad advice that they were selling. This

again suggests that conflicts of

interest are only part of the problem

and highlights the importance of raising

the educational bar for financial

adviserss. Solving where that bar should

be across the industry from a regulatory

perspective is a big job. I do think

some things are moving in the right

direction here in Canada, but investors

seeking advice can still look for

advisers with more than the bare minimum

regulatory credentials. Credible

credentials with rigorous credentiing

programs, ethical standards, and

enforcement for professional and ethical

conduct like the CFA and CFP are good

places to start. It is also worth noting

that how an adviser is registered does

matter. A discretionary portfolio

manager in Canada is generally held to a

higher legal standard with a deemed

common law fiduciary duty to their

clients than a non-discretionary mutual

fund representative. My hunch is that

many consumers assume that financial

advisers are required to act in their

best interest, but that is not always

the case. The good news for consumers is

that there are non-bank firms that

employ portfolio managers, use lowcost

investment products, and limit their

conflicts of interest. Acknowledging my

own biases here, as the chief investment

officer at PWL Capital, I think that PWL

is a great example. PWL's clients work

with portfolio managers whose

compensation is not tied to product

sales. We require our adviserss to have

advanced credentials like the CFA and

CFP, and we promote and pay for ongoing

education for our adviserss. It's part

of our culture. PWL even takes all this

a step further by getting independently

certified as placing our clients

interests first by the center for

fiduciary excellence. I've been part of

that annual audit and it is no joke. I'm

not saying that PWL is good because I

work for PWL. I work for PWL because I

think that the way this firm operates is

exactly how financial advice should be

provided to Canadians. I started out in

financial services with a

commission-based job selling insurance

and mutual funds. I had to sell high fee

actively managed products or insurance

if I wanted to eat. I feel for the bank

advisers in a similar position, but that

doesn't make raising awareness about the

problems with bank financial advice any

less important. What's important for

consumers to understand is that CBC News

investigative journalism and a recent

survey conducted by the OC and CRO

suggests that financial advisers at

branches of Canada's big five banks are

under heavy pressure to sell financial

products that are often not in the best

interest of their clients. One in four

representatives in a regulatory study

report that clients have been

recommended product or services that are

not in their interests. The study

suggests that this may be tied to the

sales environment within the five bank

affiliated dealers, including

compensation incentives and performance

metrics used. A high degree of pressure

to meet sales targets and the frequent

use of scorecards to track, compare, and

emphasize those sales targets. That kind

of sales culture and incentive structure

might be appropriate at a car

dealership, but at least in my opinion,

financial advice deserves a much higher

bar. Consumers should be looking for

adviserss with credentials like the CFA

or CFP who are employed by firms that

put their clients interests first,

encourage education for their adviserss,

and incentivize highquality advice over

product sales. Thanks for watching. I'm

Ben Felix, chief investment officer at

PWL Capital. If you found this

information useful, please share it with

someone who is still taking advice from

the bank.