Do banks give good financial advice?
I was reviewing life insurance needs for a young couple that had just purchased their first home. As usual, I inquired if they had begun to save for retirement, they said they had an RRSP account with the bank. In fact they had begun years ago saving monthly. They agreed to drop off a statement for me to review and see just what they were in invested in. Imagine my surprise when I reviewed the accounts and found since 2008 the bank had been wise enough to lock their money in series of five year GICs at a whopping 1% and up to a high of 2%.
Invest short term
Curious I did a little research on the history of rates since 2008. I can invest through the RDBA so have access to this information. How would you feel if your bank had done this to you, when at the time the average 5 year rates were between 3 and 4%! In fact I could have put that money in a high daily interest savings account during that time at 2%. Now the bank says they cannot unlock these GIC’S so the clients must wait for each maturity to come up. On top of this they are charging $50 each time a maturity is transferred out of the bank.
Related article: Advice for GIC investors
The rule of 72
If we used the simple rule of 72, the mathematical formula for compound interest, you can calculate quickly how many years for the investment to double. So at 1% interest, (72 divide by 1= 72) it will be 72 years for the money to double! At 3% (72 divide by 3= 24) it will be 24 years. That is a very big difference in value over time.
Related article: The power of compound interest
Is the bank giving good financial advice?
Investors need to begin to question the financial advice from banks and stop this kind of treatment. I believe investing a client’s money like this is not in their best interest, yet people continue to trust that the bank tellers and personal bankers are taking care of them. Most likely many of them do not even understand how they are hindering a clients future. Many have sales goals they must reach weekly and simply offer the products they are told to sell.
Related articles: Not all financial advisors are created equal
Why is it so many Canadians do not trust financial advisors, who have been trained to find products that are suitable for clients goals with their money? To add to the questionable advice given by most banks, they will also sell you creditor insurance on your lines of credit and mortgages. These products are often very expensive and insure the bank not the client and their family.
Canadians need to become more aware and more educated so they can question their banks and hold them accountable for the advice or lack of advice! Ask for an explanation of why and what your money is invested in.
Comments
IMO, Financial advisors at banks are worthless. They all get compensated by the product they sell. It’s much better to go with a fix fee financial planner.
I don’t have any experience with bank financial advisors but I certainly wouldn’t put my future in the hands of a bank teller. After I moved to Canada Mrs.CBB and I questioned the bloke she had managing her investgments. He was a rep for a popular company that promotes and looks for people to take their course and they get commission for what they sell. I didn’t trust him as he couldn’t even answer simple questions I was asking him. Anyhow, we’ve since moved to a proper Financial Advisor. It can get scary when you don’t know who you are investing with but do you ever really know someone?
As someone who actually works for a bank I see this all the time. There are millions of dollars being wasted sitting in low rate GICs. I have been working as hard as I can to get every client I can out of GICs.
The problem I come across is that people don’t want to think about their investments. I’m an advisor but I’m not a babysitter. I can’t stay on top of every single client at my branch. I try…but I can’t. Especially when I call clients repeatedly and they never answer their phones or return my messages and then they don’t show up for their appointments.
There is only so much chasing a bank rep can do. At some point it is not the fault of the bank but the fault of the customer. If you want good advice from your bank you can get it, but you have to show up for your appointment and answer your damn phone.
Ive seen a thousand articles like this – mostly written by independent planners. Bad advice happens everywhere, and I would argue it happens more often from commission-based financial planners. Dont be fooled into thinking that banks are more greedy than your average Investors Group advisor (for example). Some of the worst portfolio returns I have seen come from these planners, and even discretionary planners (flat fee) that claim to be able to stock pick (every day) for multiple different clients. Lets talk about hidden fees like DSC charges that most independents must sell (without proper disclosure) – banks dont charge these. Yes banks do have fees and often lower rates, however there is always a cost for safety. Its risk and reward, and if you dont understand that you shouldn’t be writing financial articles.
Nice read, between bank’s as oppose to a personal
financial adviser there is a huge gap. Banks arnt qualified and are restricted in the advice they can give you. If your dealing with investment and financial risk a adviser is definitely the best option.