Mortgage Logic

What to Look for in a Chat with the Bank

Rob Carrick, Globe and Mail

Your friends at the big banks would like to have a chat with you.

Bank of Nova Scotia invites you to stop by one of its branches for a second opinion on your investments. "It's worth a talk, " Canadian Imperial Bank of Commerce is saying about your finances, while Toronto-Dominion is urging people to come into its TD Canada Trust branches for a personal assessment.

For months now, the banks have followed a shrewd marketing approach of using their familiarity and solidity in uncertain times to cement relationships with existing and perhaps even new customers.

For some tips on getting advice from a bank, let's check in with Dan Richards, a consultant who works with the advisory community and spends a fair amount of time interviewing investors, both one-on-one and through focus groups. Mr. Richards suggests you apply a simple test when having a conversation with a bank investment adviser: "How much time does the person you're talking with spend talking about your needs and your circumstances before they get to the recommendations?"

According to Mr. Richards, creating a quick financial overview of your situation, including where you are now and where you want to be in retirement, is no big deal thanks to the wide availability of financial planning software. These outlines will set out the annual savings and rate of return required to hit an investor's goal. They also enable investors to make informed tradeoffs around issues like the amount saved, age of retirement, post-retirement spending plans, and the possibility of working part-time after retiring.

Ideally, Mr. Richards said the adviser would more or less follow a 70-15-15 rule. That's 70 per cent of the time spent of figuring out what your needs are, 15 per cent of the time looking at your current portfolio and what you own and 15 per cent of the time spent on recommendations for moving forward.

"Frankly, product should be the least important part of the conversation," he said.

Still, you have to bear in mind that selling product is how the bank will most likely make money by providing you with financial advice. There are three ways that investors may pay for advice - through commissions and fees on products, through a fee that is set at roughly 1 to 2 per cent of your assets, or through a flat or hourly fee.

If you deal with an adviser at a bank branch, you'll most likely pay for advice through fees embedded in the products you buy, especially mutual funds. Mr. Richards believes bank mutual funds have improved a lot over the years, but he raised the question of whether you'd want to give all your business to the bank's own funds. This suggests a question to the adviser providing a second opinion: can you sell mutual funds that aren't part of the bank's own family of funds?

Watch out for advisers who recommend you replace everything you own, Mr. Richards said. "There may be the odd case where it makes sense to completely turn over a portfolio, but most investors likely own a core of holdings that are just as appropriate as anything an adviser might recommend you replace them with."

Something else to consider when evaluating your bank's adviser is how good a job they're likely to do in communicating with you on a continuing basis. Mr. Richards said poor communications are one of three major reasons why investors are unhappy with their current advisers (two others are poor investment returns and a feeling the adviser is too passive in a fast-moving financial world).

If you're thinking of switching to a bank adviser, Mr. Richards suggests asking what kind of ongoing contact and communication you can expect. Sample question: "Tell me about the kind of communication your clients received from you last fall."

Mr. Richards sees a couple of trends working against the banks' second-opinion strategy.

For one thing, people dissatisfied with their advisers seem to be migrating to do-it-yourself investing through online brokers. Banks own the dominant online brokers in Canada, so they're not losers in this trend. Still, selling a client a bunch of mutual funds is more lucrative than charging them for a few stock trades every year.

A second trend has to do with investor attitudes toward those who dispense investment advice.

"One of the things I have been struck by is how incredibly skeptical many investors are," Mr. Richards said. "They're not just skeptical of their financial adviser or institution. A lot of them are skeptical about all advisers and all institutions."


Second opinions available here

Banks are inviting their customers in to talk about their financial situation in hopes of selling them more services and products. Here are some examples of what's being offered:

Bank Pitch Emphasis
Bank of Nova Scotia "Get A Second Opinion" investment planning
CIBC "It's Worth a Talk" banking
TD "Come in for a TDPersonal Assessment" retirement

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