One day you decide to walk into your bank to see if your advisor is working. You were nearby and wanted to ask him a question about your investments. You walk up to the reception and ask to speak to him. To your surprise, you are informed that you have been assigned someone new.
Unfortunately, as many of us are aware this is not an uncommon scenario. Establishing a trusting relationship with a new financial advisor can be a daunting task. After all, this person is managing your money!
The Ernst & Young 2013 Canadian Retail Banking Survey reports that “over 65% of respondents said it was important to have a personal banking representative who understands their unique needs, is aware of their existing relationship with the bank and is familiar with previous interactions they’ve had with the bank”. In addition, over 40% of people said that they would even switch their main financial institution if another bank offered this type of personal and knowledgeable service.
As a former employee of one of Canada’s top five banks, I know first-hand how the banking hierarchy works. Turnover is typically the highest in the entry banking positions that take care of clients with a smaller net worth. The wealthier clients are catered to by the financial planners, which are often more experienced and usually have a longer tenure in their position.
Through our past article “My Financial Advisor; Friend or Foe” we described the compensation structure of all types of advisors . At most major banks, the advisor is given a base salary but can obtain a bonus by achieving various objectives. One of the major goals revolves around having clients transfer all their financial assets to the bank in question and invested in the bank’s mutual funds (new money). For many people in their peak earning years, their registered retirement account makes up a sizeable amount of their net worth. With a large RRSP helping to boost your wealth, this catches the banks attention and you may be given preferential treatment as their ability to make money from your portfolio is high.
As our past blog post "Tips for Public Servants" described, it is common to have little room left in your RRSP due to yearly pension adjustments, thus individuals must resort to other primary saving vehicles. Banks will typically show little interest in catering to some government employees as their retirement savings are minimal and financial institutions are unable to monetize the most important asset these individuals have, their defined benefit pension! Nevertheless, there remains many ways to efficiently build wealth and appropriately plan for future goals which should not be ignored.
However, the word “unbiased” is very rarely used to describe the retail banking sector. The fee-for-service model may be one of the surest ways to guarantee an unbiased professional opinion with an advisor that will stick around for your best interest.