This article appears in the October 2023 issue of Investment Executive. Subscribe to the print edition, read the digital edition or read the articles online.
The big six banks continue to allow their branch-based advisors and planners to sell house-branded products only — despite regulators’ concerns that the practice may present a conflict of interest (see “The regulatory context” ). And while some advisors have issues with the restrictions, most realize they are not product specialists.
Unsurprisingly, proprietary products make up much of the average book for the advisors interviewed for the 2023 Report Card on Banks. The Report Card found that 88.7% of the products held in client accounts were proprietary (reported as of Dec. 31, 2022), down slightly from 90.8% a year earlier.
Branch advisors remain able to transfer in third-party products for clients but cannot add to those positions.
Bank advisors also continued rating their institutions favourably for performance in “freedom to make product choices,” with the category receiving an 8.6 in 2023, up from 8.2 last year. Even the lowest-rated bank in the category, Toronto-Dominion Bank (where planners work with TD Wealth Financial Planning), saw a significantly improved rating (by half a point or more) of 6.9, from 5.2.
Several TD advisors recognized that they’re operating in a limited ecosystem.
“We [can] only use the TD product shelf. If your question refers to third-party [funds], then we don’t have a choice. Choice is zero,” said one of the bank’s advisors in Ontario.
But many others had no issues, saying their expertise was not in choosing funds. “Product is not my value. It’s a tool that I use to accomplish our strategies, but not my day-to-day value that I bring to my clients,” said another TD advisor in Ontario.
TD was rated lowest for “quality of product shelf,” at 7.7, up from 7.4 in 2022. Advisors again acknowledged that their shelf was limited, and mainly suggested the bank expand access to products such as ETFs and portfolios with varying currency exposures.
“I’d always love more solutions for my more conservative clients who don’t want to take a lot of risk and don’t want GICs,” said a third TD advisor in Ontario.
Ryan McNally, senior vice-president, wealth advice distribution, with TD Wealth, maintains that TD’s advisors are “in the business of building a financial plan, identifying needs for clients and then aligning investment solutions against those needs. We’re always going to look at it from the point of view of not being product-led.”
Franceen Bernstein, vice-president and head of financial planning with TD Wealth, added that advisors have expressed appreciation of TD Asset Management’s expertise. “If we discover there’s a gap in [meeting] clients’ needs, we’ll put it on the shelf,” she said.
Sentiment was similarly mixed even at the highest-rated bank in the Report Card’s product-quality and freedom categories. Advisors with CIBC (who work with CIBC Imperial Service) gave ratings of 9.0 and 9.3, respectively — similar to last year.
“There was a lot of talk about objectivity when the third-party changes came, but our portfolio service is multi-manager,” said a CIBC advisor in Ontario. “Even though we have a CIBC brand, there’s still input from outside, so I can be very objective.”
But a CIBC advisor in Quebec said, “They will say we can offer whatever we want, but the push is obviously for investable managed money. Maybe they could put less focus on this, and more on GICs or whatever the client wants.”
While CIBC’s rating for “bringing new investment products to market” slipped to 8.6 from 8.9 year over year, advisors noted the bank’s competitiveness.
“They want to have an edge. We introduce smart investment solutions [and] there are always goals-based planning options depending on what the client wants,” said a CIBC advisor in Ontario.
The regulatory context
In August, the Canadian Securities Administrators and the Canadian Investment Regulatory Organization highlighted compliance deficiencies they uncovered at some firms that offer solely proprietary product. The regulators called the practice “an inherent conflict of interest that is almost always material, given the potential for registrants to ignore clients’ best interest.”
These results landed as the Ontario Ministry of Finance told Investment Executive that it’s still reviewing the Ontario Securities Commission’s (OSC) report that investigated, in part, concerns about Canada’s big banks restricting their branches’ product shelves to proprietary funds — a report the ministry received more than 18 months ago.
The ministry said in an email that it’s still considering the OSC’s “response and recommendations” around potentially anti-competitive practices at Canada’s major banks.