Beyond banks' resilient reputations

The strength and renown of Canada’s Big Six banks has been reflected in Investment Executive’s (IE) annual Report Card on Banks for the last decade. Despite recent regulatory challenges and an evolving industry, the IE rating (the average of all of a bank’s category ratings) collectively for the banks has barely wavered from the 10-year average of 8.2.

The Report Card included credit unions until 2015, after which the focus shifted to branch-based bank advisors who perform financal planning. Still, the lowest dips in the collective IE rating in the past 10 years were to 8.1 in 2010, 2011 and 2013, while the rating’s 10-year peak was 8.4 in 2014. In 2019, the rating was 8.2.

A deeper look, however, reveals the Big Six’s retail advisors may be less satisfied this year. Across the banks, only 20 category ratings improved significantly (by 0.5 or more) vs 26 a year ago, while 33 declined by that same margin (these totals exclude the IE rating and overall rating by advisors) vs last year’s 20.

Advisors, once again, said banks’ performance was weakest when it came to “back office and administrative support,” rated at 6.7 on average vs 7.1 in 2018. The second-lowest rated category was “support for using social media,” rated at 6.9 vs 7.9 last year. While the social media category saw the largest decline year-over-year, performance averages fell for 15 of the 31 categories surveyed, compared to 12 in 2018.

The two weakest categories garnered the Report Card’s only ratings below 5.0. For its back- office support, Toronto-based Bank of Nova Scotia was rated 4.7 (vs 6.6 in 2018). While that’s far below its 2019 IE rating of 7.8, several advisors mentioned that administrative staff changes and attempts to streamline back- office processes have left advisors with more on their plates.

A Scotiabank executive said no recent back-office changes have been made following centralization a couple of years ago, but that the bank continues to “work on improving and enhancing” its processes based on advisors’ feedback.

In the social media category, Toronto-based Toronto-Dominion Bank (TD) was rated 4.4 (there were insufficient responses last year to calculate a rating). TD also had the lowest IE rating, at 7.3. One advisor in Ontario mentioned that only “cookie-cutter” website tools are offered, while another described internal social media access as “the missing link right now.”

The third-lowest category in the 2019 Report Card was “technology tools and advisor desktop,” rated 7.0 vs 7.3 in 2018. In that area, Toronto-based Bank of Montreal (BMO) was rated 5.4 vs 6.5 in 2018. BMO was also the only bank to see its IE rating drop significantly, to 7.7 from 8.2. “I know they are investing and trying to make [technology] better, but it’s not. Will it get better? Hopefully,” says a BMO advisor in the Prairies.

BMO dropped significantly in 18 of 31 categories and didn’t improve by that same margin in any. TD had the second-highest number of significant category rating drops (seven), while three categories rose by the same margin. As for the percentage of advisors who would recommend their banks, BMO came in last at 86% and TD and Scotiabank tied for second-last at 88%. The average for all banks was 91.9%.

The six banks were strongest when it came to “firm’s ethics” and “online account access for clients.” In these categories, the banks collectively scored 9.3 and 9.0, respectively, vs 9.3 and 8.9 in 2018. “Firm’s succession/retirement program for advisors” and “firm’s corporate culture” were the categories that improved the most within the past 12 months, by 0.3 each to 8.2 and 8.6, respectively.

The top banks in those four categories were Canadian Imperial Bank of Commerce (CIBC) and Royal Bank of Canada (RBC), both of which beat the four performance averages by 0.5 or more. (Both firms are based in Toronto.)

Those two banks have led the Report Card overall for several years. CIBC took the top spot again this year with an IE rating of 9.1, followed closely by RBC at 9.0. Both tied for highest overall rating by advisors, at 9.4. Further, both banks came most highly recommended by their retail advisors (98.0% for CIBC and 100.0% for RBC), holding steady for the third year in a row.

CIBC advisors praised the bank’s leadership, pay structure and overall work environment. One CIBC respondent in Quebec says Victor Dodig, president and CEO since 2014, “walks the walk and talks the talk.”

At RBC, many advisors valued their bank’s corporate culture, branding and product suite, with one advisor in the Prairies saying, “I don’t feel left out; we’re a team. [The] corporate culture is second to none.”

CIBC and RBC significantly outperformed their peers in the “support for dealing with changes in the regulatory environment” category. Both were rated 9.6 (that was CIBC’s third-highest rating and tied for RBC’s second-highest rating), well above the 8.7 average. The regulatory category was among the best-performing in this year’s Report Card, even while banks’ individual performance ratings in the category varied. It was also rated as one of the most important (9.5).

CIBC advisors cited ample training, communication and frequent meetings with compliance officers as highlights. RBC advisors said they’re updated on rules through training, in-branch support and conferences, with one advisor in the Prairies calling the bank “very compliant” and “proactive.”

Advisors’ focus on compliance isn’t surprising, but their positivity is. Over the past few years, the Financial Consumer Agency of Canada’s (FCAC) has been reviewing alleged improper sales practices at the Big Six. While a March 2018 report did not find evidence of widespread mis-selling, the report criticized the cultures of the institutions. And, as mentioned in the federal government’s 2018 Fall Economic Statement, the FCAC will review the complaints-handling processes of banks. The results are due after the federal election.

Even so, the overall performance rating for “firm’s reputation with clients and/or prospective clients” was the same as it was in 2018: 8.6. This category also remains one of the most important areas for respondents. Common descriptions of banks’ reputations, across all of the Big Six, were “very good” and “solid,” and many advisors said their institutions have made great strides to deal with negative press.

In a near reversal from 2018, the performance rating for “firm’s consumer advertising” dropped 0.5 year-over-year to 8.0, slipping below its 2017 level of 8.1. Similarly, “firm’s marketing support for advisor’s practice” also dropped 0.5, to 7.2, and below its 2017 performance rating. This time, advisors’ main gripes were not over client-centric issues, but included the weak regional vs national advertising presences of some banks, and the fact that banks generally do not allow advisors to customize their online profiles.

A positive sign for the banking sector is the 2019 Report Card finding that the books of business of those surveyed grew dramatically in the last 12 months to $121 million on average vs roughly $98 million in 2018. Branch-based advisors’ total compensation also jumped compared to last year, with more respondents (70.7% vs 56.3%) citing annual pay of $100,000 or more. (See Growing Divide)

When asked about the biggest threat to their revenue for the next 12 months, advisors’ responses were varied. While 27.8% of those who answered chose “price competition” out of six options, the most popular answer was “Other.” Advisors noted a range of challenges, such as clients dying, housing and equity market risk, and – unlike in other Report Cards – regulatory guidelines that aren’t strict enough.

“Regulators have already [reduced the compliance burden] by introducing rules around fee disclosure. That’s really helped me. [They] should put continued pressure on disclosure and providing plans to clients,” says a CIBC advisor in the Prairies.

Echoing that sentiment, an RBC advisor in B.C. says they would like regulators to “increase the standards across the country.” Similarly, says a BMO advisor in Alberta, “I don’t think they should take any rules back; they should do more.”

How we did it

Investment Executive’s (IE) Report Card on Banks gives financial advisors at Canada’s six largest banks the chance to review how they, their businesses and clients are supported at the branch level. Across the banks, these financial advisors and/or planners must work in a branch and sell investment products (as opposed to credit products) to retail clients with whom they have long-term relationships.

Survey participants are typically employees of banks’ retail divisions. The one exception, however, is the group of financial planners from Toronto-based Toronto-Dominion Bank; those advisors are part of TD Wealth Financial Planning. As for working with clients, advisors with Toronto-based Bank of Nova Scotia are different in that they have access to clients’ information and focus on needs-based planning, but do not manage individual books or aim to grow assets. They serve assigned groups of clients, out of a collective base, rather than building their own books.

For the 2019 Report Card, IE research journalists Jordan Barrera, Daniel Calabretta, Maddie Johnson and Surina Nath interviewed 287 bank advisors across the country. The respondents were asked to provide both performance and importance ratings (on a scale of zero to 10, with zero meaning “poor” or “unimportant” and 10 meaning “excellent” or “very important”) for the 31 categories on the main ratings table. This results in performance averages for each category, and IE ratings (the average of all of a company’s category ratings) for each bank and overall. Respondents also give an “overall rating by advisors” for their banks, also on a scale of zero to 10.

Advisors answered two supplementary, multiple-choice questions: one about the biggest threat to their revenue for the coming year, and another about regulators’ efforts to reduce the financial services industry’s regulatory burden.