Bank sur­vey holds lessons for ad­vi­sors

Al­though there’s a high level of trust in banks, clients also say that they don’t like feel­ing sales pres­sure from bank em­ploy­ees

Investment Executive - - NEWS - BY PAUL BRENT

j.d. power and as­so­ci­ates’ first Cana­dian Bank­ing Sales Prac­tices and Advice Study didn’t yield any big sur­prises, but the re­sults could hold im­por­tant lessons for fi­nan­cial ad­vi­sors.

The Costa Mesa, Calif.-based re­search com­pany’s sur­vey of cus­tomers of Canada’s Big Five Banks found that Cana­dian clients do not like feel­ing sales pres­sure at branches.

How­ever, most of those sur­veyed place a high de­gree of trust in banks and fi­nan­cial advice is highly val­ued. Over­all, the big banks get a “clean bill of health,” in the words of one ex­ec­u­tive be­hind the study.

The study also con­cluded that sur­prise fees and charges levied by banks de­stroy trust among clients. On the flip side, fee trans­parency and cus­tomer en­gage­ment in­crease client sat­is­fac­tion and trust.

Al­though the sur­vey fo­cused only on bank cus­tomers, the re­sults could ap­ply to fi­nan­cial ad­vi­sory clients as well, says Dan Hal­lett, vice pres­i­dent and prin­ci­pal with High View Fi­nan­cial Group in Oakville, Ont. Im­proved trans­parency re­gard­ing in­vest­ment man­age­ment fees and bet­ter lev­els of en­gage­ment and advice make for hap­pier clients.

“[The sur­vey re­sults are] def­i­nitely con­sis­tent with my in­ter­ac­tions with in­di­vid­ual in­vestors,” Hal­lett says.

Ad­vi­sors serv­ing high net­worth clients typ­i­cally are more trans­par­ent in dis­clos­ing the cost of advice and prod­ucts, Hal­lett adds, be­cause those clients gen­er­ally are more knowl­edge­able about fi­nances and demand the in­for­ma­tion.

Prior to the im­ple­men­ta­tion of the sec­ond phase of the client re­la­tion­ship model (a.k.a. CRM2), de­ter­min­ing how much was be­ing paid in in­vest­ment fees for prod­ucts such as mu­tual funds was dif­fi­cult for many clients, he says. How­ever, CRM2 does not guar­an­tee that clients will be fully in­formed about all fees they pay. New re­port­ing rules are “a step in the right di­rec­tion, but need to go one or two steps fur­ther,” Hal­lett says.

The is­sue with CRM2 is that it can lead clients to believe that they are re­ceiv­ing full dis­clo­sure on fees, says Ed Sk­warek, vice pres­i­dent of reg­u­la­tory and pub­lic af­fairs with the Fi­nan­cial Ad­vi­sors As­so­ci­a­tion of Canada (a.k.a. Ad­vo­cis).

“In re­al­ity, he says, “you only have full dis­clo­sure on a very lim­ited prod­uct shelf here, and that would be the mu­tual fund shelf.”

That is why both bank em­ploy­ees and ad­vi­sors should come clean on all the fees they charge.

Bob Neuhaus, a mem­ber of the fi­nan­cial ser­vices prac­tice team at J.D. Power, says the re­cent study of­fers sev­eral insights of in­ter­est to ad­vi­sors.

“In con­ver­sa­tions with cus­tomers, you don’t want them to be sur­prised,” Neuhaus says. Writ­ten and ver­bal com­mu­ni­ca­tions should be straight­for­ward, sim­ple and un­der­stand­able.

Fol­lowup also is im­por­tant in the months im­me­di­ately af­ter the sale of a new prod­uct or in­vest­ment, he adds. Clients may have sec­ond thoughts or con­cerns, or their cir­cum­stances may change.

Neuhaus also notes that the value of advice of­ten is over­looked in an in­dus­try in which most prod­ucts and their fees are al­most in­dis­tin­guish­able — whether those are bank­ing or in­vest­ment prod­ucts: “There is lit­tle dif­fer­en­ti­a­tion be­tween prod­ucts.”

The study also con­cluded that banks (and, by ex­ten­sion, fi­nan­cial ad­vi­sors) need to up their game when pro­vid­ing fi­nan­cial advice to their clients.

“Only half of [bank] cus­tomers [par­tic­i­pat­ing in the sur­vey] said that the advice they got was per­son­al­ized. And, again, only half said that it met their needs,” Neuhaus says. “There is a pretty big op­por­tu­nity here to pro­vide bet­ter-qual­ity advice. When it is done well, peo­ple are act­ing on advice — 70% of cus­tomers said they acted on it.”

The sur­vey also found that trust might be the banks’ most im­por­tant non-fi­nan­cial as­set. Among re­tail bank cus­tomers par­tic­i­pat­ing in the sur­vey, 81% said they ei­ther “some­what agree” or “strongly agree” that they trust their bank to do the right thing, and 75% said they believe their bank acts eth­i­cally.

A sta­tis­ti­cally in­signif­i­cant pro­por­tion of sur­vey par­tic­i­pants — fewer than 0.1% — had an unau­tho­rized ac­count opened by their bank in the past year. The sur­vey was con­ducted af­ter a se­ries of news sto­ries by CBC Tele­vi­sion ear­lier this year re­vealed that some bank staff felt pres­sured to up­sell cus­tomers on fi­nan­cial prod­ucts to meet in­ter­nal sales tar­gets.

The J.D. Power sur­vey found cus­tomer sat­is­fac­tion with a bank in­creased by 78 in­dex points (based on a 1,000-point scale) when bank rep­re­sen­ta­tives asked ques­tions be­fore sug­gest­ing a client open a new ac­count.

As well, cus­tomer sat­is­fac­tion in­creased when bank rep­re­sen­ta­tives of­fered fi­nan­cial advice. For ex­am­ple, over­all sat­is­fac­tion scores were 64 in­dex points higher among sur­vey par­tic­i­pants who said they re­ceived fi­nan­cial advice from a bank­ing rep­re­sen­ta­tive.

Over­all, 71% of sur­vey par­tic­i­pants who re­ceived fi­nan­cial advice re­ported that they fol­lowed the bank rep­re­sen­ta­tive’s sug­ges­tion, while 59% of sur­vey par­tic­i­pants said they had opened a new ac­count as a re­sult of the advice they re­ceived.

J.D. Power sur­veyed 8,792 re­tail bank cus­tomers of Canada’s five largest banks in June. It was in­tended to mea­sure sat­is­fac­tion among Cana­dian re­tail bank cus­tomers who have: opened a new bank ac­count in the past year on the advice of a bank rep­re­sen­ta­tive; re­ceived fi­nan­cial advice in the past year from a bank rep­re­sen­ta­tive; or had an ac­count opened with­out their con­sent in the past year.

In con­ver­sa­tions with clients, you don’t want them to be sur­prised. Com­mu­ni­ca­tions need to be straight­for­ward

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