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A regulator-led survey of Ontario mutual fund dealers based out of big banks shows a sizable minority are not always acting in the interests of clients.
The survey of close to 3,000 dealers by the Ontario Securities Commission and the Canadian Investment Regulatory Organization found that 25 per cent say they have at least sometimes recommended products or services to clients that are not in their interest.
The results show sales pressures and compensation structures may be creating a problem, said OSC chief executive Grant Vingoe.
“While it’s clear many bank representatives are prioritizing quality advice, it is also clear that sales pressures and incentivization may be driving concerning behaviours,” he said in a statement.
The survey also showed about one in three representatives had provided incorrect information at least sometimes, while 32 per cent agreed that the way compensation is structured, it places more value on sales volumes than the quality of advice given to clients.
Respondents were able to provide extra commentary as well, with some emphasizing the tension between compensation-linked sales targets and putting the needs of clients first.
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On average, dealers said variable compensation made up 10 per cent of their total compensation, while on the higher end it could run to 20 per cent.
But dealers also reported general pressure to hit targets, with 68 per cent experiencing sales pressure at least sometimes, and 35 per cent experiencing it often or always, and 44 per cent agreeing that there is a fear of job loss if targets aren’t met.
The survey found 23 per cent of dealers agreed there is high pressure to sell potentially unneeded products or services, while 60 per cent disagreed with the statement.
The OSC says its next steps will be working to understand the sales practices and what controls are in place to address any material conflicts of interest.
The Canadian Bankers Association and its members are reviewing the report’s summary of survey results, said association spokeswoman Nathalie Bergeron in a statement.
“Building and maintaining strong customer relationships is a key focus for banks in Canada. Our members are committed to providing needs-based advice that helps clients reach their financial goals. Banks and their employees prioritize consumer and investor protection measures and strive to put customer interests at the centre of all product and service recommendations.”
Mutual fund dealer rules, which the Canadian Investment Regulatory Organization oversees, require sales representatives to address all conflicts of interest in the best interest of the client.
The regulators launched the study in response to a CBC investigation released last year that alleged bank sales targets were leading dealers to pressure customers to sign up for financial products they didn’t need.
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