The Back End of Banking

Alright, so I just quit my job in retail banking to go back to University to complete my Master’s degree. I have done three years with a few different banks, but I think I got the gist of what it was about; At least on the ground level.

First off, I would like to note that I went into retail banking straight out of University after completion of my Business degree. I worked as a junior advisor and moved to a financial advisor position and then onto a relationship manager. I was lucky enough to be able to skip the teller step in my career, and to this day I am grateful due to the flack and disrespect they take on a daily basis, in most cases it would have lead me to jumping over the counter at some people.

My clients were, for the most part, great to deal with. It was definitely fulfilling to be able to set out a plan for someone in order to better their financial situation whether it be a business or retirement plan (if they stuck to it was another story). I will say, just as any person in a retail based business would agree, that every day my faith in humanity was tested by the sense of entitlement and superiority of some clients who felt you owed them the world.

As for my colleagues, many of my fellow bankers were excellent at their jobs. They were most definitely looking out for the client. However, throughout my time, I felt like I was being pushed to be more of a cell phone salesperson instead of what our training department so eloquently named us as, “financial professionals”. Now don’t misunderstand this; of course a bank is a business, and profits are a major factor so we need to sell just as such. Hell, we are in the business of making money! But there is something to be said about the level of adverse selection leading to moral hazard within a bank that needs further discussion. In every training or coaching session, it is ingrained in our minds that the natural order of banking priority goes:

1.       Clients

2.       Banks

3.       Your own

However, there was definitely a reversal of those priorities among many of the advisors due to incentives. Excessive amounts of debt was being sold to clients strictly because it was the banks "flavour of the week". There was a sheer disregard in most cases as to the financial well being of the client being sold the product, since there may be an internal competition to sell the most, or management pressure to sell.

Might I add, more often than not, the person selling you that product in a bank has no financial background and truly doesn't understand how many of the products effect you as a client. It is a bit disconcerting when I talk with colleagues at the same level as me who don't understand the meaning of risk and return, how interest rates move, how a mutual fund works (and they sell mutual funds!), opportunity costs of debt repayment versus investment, or other BASIC financial information. I personally would like the peace of mind that the person giving me advise knows their own product. Most often there is just a scripted way to sell these things whereby most have no interest to pursue further knowledge allowing the quick sell. I put emphasis on this so much since we aren't selling lumber for a DIY project. We are dealing with your life savings and financial well being. Advisor's need to be held to a much higher standard by our clients at the branch level but don't seem to be.

This brings me to adverse selection causing moral hazard. This, put simply in this situation, is the bank and the client having different information, and moral hazard is acting unethically on that asymmetric information. Advisor's know the advantages and disadvantages of different products, and they also know which will benefit themselves more in the form of praise or bonus structure. This plays a major role in the advise given to each customer. Unnecessary products are sold to clients all the time, strictly to benefit the banker. There is always a great story to go along in order to justify it, but in reality there is no good reason for the client having it. Not only that, but I've encountered many people who were never even told that things were being opened, let alone what they were or how they worked!

I draw on my previous statement of feeling like nothing more than a salesperson. There is a deceptive name placed on you as an “Advisor” or whatever jargon is put onto your business cards. The reality and truth should be that we are very much salespeople. Our job is to bring you in, poach your business from other institutions, and are told to manage your relationship with the bank going forward. Most likely we won’t; we will be gone in six months to a year into another position leaving the next person to wait for you to walk through the door instead of following up with you, starting the entire process again. Sound familiar?

Now I will say, this is more of a consistency problem than a normality. It usually comes down to a crap shoot as to which branch you go into and who you sit down with. Some are ready and willing to work their asses off for you and give you the best advice, but some are just looking for a paycheck or a boost up to the next level.

This is where I flip the table onto the consumer, and say that there are too many people that don't understand the basics of personal finance. I am not saying a lack of banking knowledge, as there's way to much know. I just mean a working knowledge of where their money is coming from, and where it is going each month. This is one of the reasons why the average Canadian is sitting on debt levels that equate to around 150% of their annual income, not including mortgages, along with greed and the perceived "need" for instant gratification. Of course I am guilty of this, I mean, we're all human.

It is quite the perfect storm though; unethical advisory mixed with a sense of consumer naivety towards finance. So how do we fix it? Self-education, it seems obvious but there are too many trusting people that believe that the person smiling, conveying empathy with the fancy title is working in their best interest. I’ll be honest, my hardest days in banking were when people questioned my judgement, however, those people were the ones I wanted to deal with and prove my knowledge to, because they understood the value in not being another sheep.

Whether it be a simple budget, or creating a full financial plan, just dedicate a small portion of your time to simply identifying your financial weaknesses and addressing them head on. Ask questions, and don't feel bad for saying NO! Advisors are there to fill the gaps that you are not expected to know. They are there to act as a fiduciary that works on your behalf. But do not forget that they also have a duty to their employer as well.

Thinking objectively in finance is a key factor in your overall future success; do your own due diligence to come up with your own decisions, because you are the only one that has your best interests in mind.