Special Feature

Report Card on Banks 2017

Canada's Big Six banks are struggling to live up to their branch-based financial advisors' expectations in some critical categories while the advisors themselves are watching their books of business shrink.

Advisors have high expectations of their banks' pension plans, but many bemoaned the changes their firms have implemented

By Sophie Allen-Barron | July 2017

Unlike financial advisors in the brokerage and mutual fund dealer distribution channels, who have the opportunity to sell their books of business to fund their retirement, advisors who work at Canada's banks rely largely on their bank's pension plan to provide a comfortable retirement.

Thus, banks that can provide a solid income during these advisors' golden years alleviate much worry - especially for advisors who are approaching retirement. No surprise, then, that advisors gave the "firm's succession/retirement program for advisors" category an overall average importance rating of 9.2.

However, advisors gave an overall average performance rating of only 7.9 in this category. This 1.3-point difference between these two ratings resulted in a "satisfaction gap" that's in a three-way tie for fourth-highest in this year's Report Card on Banks.

This dissatisfaction stems from what advisors view as a three-pronged problem: low pension payments; changes to the way their pensions are paid out; and the continued move toward defined-contribution (DC) pension plans and away from the more popular defined-benefit (DB) pension plans.

Montreal-based National Bank of Canada, which kept its DB pension plan intact, was recognized for doing so: the bank's advisors gave it the second-highest performance rating in the category, at 8.3.

"[Our pension plan] really is one of the best," says a National Bank advisor in Quebec. "We're one of the only banks that still have a defined-benefit program."

In other circumstances, how advisors view their pension plan depends a great deal on their level of experience and which type of pension plan they have. For example, Toronto-based Royal Bank of Canada (RBC) introduced a DC plan for new hires about five years ago. But, because the RBC advisors surveyed for this year's Report Card had the second-longest tenure with their bank in the survey, at 14.1 years, many pointed to their DB plan as reason for their satisfaction. (RBC received the highest rating in the category, at 8.5)

"I'm a member of the defined-benefit plan - and it's one of the best that I know of. It's over-funded and well managed," says an RBC advisor in Alberta.

Advisors' perception of their pension plan was more mixed at banks at which there were experienced advisors who are on the bank's grandfathered DB plan and others who are on the newer DC plans.

This dichotomy was quite evident at Toronto-based Bank of Montreal (BMO). Its 8.0 rating in the category was tied for third-highest with Toronto-based Canadian Imperial Bank of Commerce's (CIBC) ranking even though the BMO advisors surveyed had the shortest tenure at their bank, at 8.1 years.

"There's not a lot of banks that have DB plans anymore, so we're lucky to have it," says a BMO advisor in Ontario.

On the flip side, a colleague in the same province says the pension plan "is not as good as before. They don't offer DB to the new hires anymore. I'm not part of that pool."

At CIBC, advisors were happy that their bank still is committed to providing a DB pension plan for its staff.

"[We have a] defined-benefit pension plan," says a CIBC advisor in Ontario. "Considering [this type of pension] is a dying breed, it's nice to have.

However, various CIBC advisors pointed to a cap on pensionable income as a major drawback of the bank's DB plan.

"We seasoned advisors, we make a lot of money, but our pension is low," says a CIBC advisor in Ontario. "It could be better by providing a higher pension limit."

"[Pensionable income] caps out at a certain level based on pay grades, which is a bummer," adds a colleague on the Prairies. "But I've taken care of my own financial planning to make sure I'm not just relying on the pension plan."

However, Scott Wambolt, senior vice president, national sales and service, with CIBC, is adamant that the bank's pension plan holds its own. He notes that CIBC increased its maximum pensionable earnings threshold a few years ago: "We benchmark it and we think it's very competitive."

Meanwhile, advisors with Toronto-based Bank of Nova Scotia were the most displeased with their bank's pension plan structure, rating it at a survey low 7.4. Although many newer advisors cited the move away from DB as reason for their dissatisfaction, more experienced advisors who still are on the old DB pension plan were quite displeased with some changes coming their way.

"[The pension plan is] crappy, but I knew that going in. It's completely changed for new people," says a Scotiabank advisor in Ontario.

Alice Eastman, senior vice president, customer experience and distribution strategy, with Scotiabank, confirms that the bank moved toward a "hybrid pension arrangement" that consists of DB and DC components for those hired after Jan. 1, 2016.

Furthermore, in September 2015, Scotiabank advisors were informed of changes to take effect in November 2018. At that point, advisors will no longer have the option of transferring the commuted value from their pension plan at retirement and will only receive monthly payments.

"We wanted to be more aligned with the market, fundamentally," Eastman says of the changes.

Although the changes aren't yet in effect, they were a point of contention, as many Scotiabank advisors cited the impending inability to take a lump-sum payout of their pensions.

Says a Scotiabank advisor in Ontario: "Not having the opportunity to move your pension to where you want to manage it is shameful."

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