Make it a goal in 2017 to try one new financial product from a company not associated with one of the big banks.
Try an alternative bank offering comparatively high interest rates on savings, or a credit union. Try a robo-adviser, where your investment portfolio is managed for you online at low cost. Try an independent financial-advice firm, or one of the non-bank online brokerage firms that scored well in my recent broker ranking.
Big banks are among this country's strongest corporations, and they have some good people working for them in branches and head office. But the need to produce ever large profits warps banks. This was sadly apparent in 2016, a year in which four banks and their investment arms reached deals with securities regulators in which they agreed to repay a total of about $150-million in overcharged fees. The banks are Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce and HSBC. Toronto-Dominion Bank agreed to repay $13.5-million back in 2014.
Here's the basic storyline: Banks overcharge clients holding mutual funds or investment accounts at one or another of its various divisions. Top people at the bank eventually notice what's happening, bring it to the attention of regulators and reach an agreement to compensate clients. The deal typically includes some money being paid toward investor education and protection, and to cover the cost of the regulator's investigation. Also, new controls are put into place to prevent a recurrence.
It's hard to understand how banks came to be taking millions of dollars in fees they were not entitled to from customers. Did bank employees program their computer systems to overcharge? Did the overcharging result from neglectful supervision of whether clients were paying appropriate fees, or receiving any discounts they might be entitled to?
Whether the issue is one of commission or omission on the banks' part, the message sent is that banks have trouble restraining themselves from exploiting customers. So, what do you do about it?
Life is busy and changing banks is a huge hassle. So don't. Instead, choose one product you use at your bank and find a better replacement somewhere else. If you want better behaviour from banks, reward competitors offering a better deal with your business.
A way to start is by setting up an account at a robo-adviser. (Check my latest robo-adviser guide for an overview of who's out there). Do you have a tax-free savings account or registered retirement savings plan at a bank or one of its affiliates that is languishing in expensive mutual funds or, worse, sitting in cash and earning little or nothing?
A robo-adviser will build and run a personalized, low-cost portfolio for you with a level of transparency that should provide assurances you won't be unwittingly overcharged. We have an account at one robo-firm at our house, and the dollar amount of fees paid each month is clearly disclosed. It's easy to track whether the right amount is being charged.
The objection people always raise about dealing with non-bank financial firms is safety. The risk of a big bank going under is slight, maybe even non-existent. Can we say the same about the competition?
No, but your money is still protected. Many online banks are members of Canada Deposit Insurance Corp., which offers up to $100,000 in coverage per depositor and per insured category, while credit unions have their own deposit insurance plans. Independent online brokers are members of the Canada Investor Protection Fund, and robo-advisers use brokers that are part of CIPF to hold client assets. CIPF protects up to $1-million in assets against broker insolvency.
Big banks have ubiquity as well as solidity going for them. You can find their branches in most cities and towns across the country, and that provides a sense of continuity and comfort. Problem is, you can't reach your financial goals with continuity and comfort. You need savings accounts with interest rates that at least keep up with inflation, and investment accounts that use a sound, fee-sensitive approach.
Experiment this year by trying something from a financial company that isn't a big bank. If a sense of loyalty is holding you back, remember the overcharging stories of 2016.
Rob Carrick