Bank survey holds lessons for advisors

However, most of those surveyed place a high degree of trust in banks and financial advice is highly valued. Overall, the big banks get a “clean bill of health,” in the words of one executive behind the study.

The study also concluded that surprise fees and charges levied by banks destroy trust among clients. On the flip side, fee transparency and customer engagement increase client satisfaction and trust.

Although the survey focused only on bank customers, the results could apply to financial advisory clients as well, says Dan Hallett, vice president and principal with HighView Financial Group in Oakville, Ont. Improved transparency regarding investment management fees and better levels of engagement and advice make for happier clients.

“[The survey results are] definitely consistent with my interactions with individual investors,” Hallett says.

Advisors serving high net-worth clients typically are more transparent in disclosing the cost of advice and products, Hallett adds, because those clients generally are more knowledgeable about finances and demand the information.

Prior to the implementation of the second phase of the client relationship model (a.k.a. CRM2), determining how much was being paid in investment fees for products such as mutual funds was difficult for many clients, he says. However, CRM2 does not guarantee that clients will be fully informed about all fees they pay. New reporting rules are “a step in the right direction, but need to go one or two steps further,” Hallett says.

The issue with CRM2 is that it can lead clients to believe that they are receiving full disclosure on fees, says Ed Skwarek, vice president of regulatory and public affairs with the Financial Advisors Association of Canada (a.k.a. Advocis).

“In reality, he says, “you only have full disclosure on a very limited product shelf here, and that would be the mutual fund shelf.”

That is why both bank employees and advisors should come clean on all the fees they charge.

Bob Neuhaus, a member of the financial services practice team at J.D. Power, says the recent study offers several insights of interest to advisors.

“In conversations with customers, you don’t want them to be surprised,” Neuhaus says. Written and verbal communications should be straightforward, simple and understandable.

Followup also is important in the months immediately after the sale of a new product or investment, he adds. Clients may have second thoughts or concerns, or their circumstances may change.

Neuhaus also notes that the value of advice often is overlooked in an industry in which most products and their fees are almost indistinguishable – whether those are banking or investment products: “There is little differentiation between products.”

The study also concluded that banks (and, by extension, financial advisors) need to up their game when providing financial advice to their clients.

“Only half of [bank] customers [participating in the survey] said that the advice they got was personalized. And, again, only half said that it met their needs,” Neuhaus says. “There is a pretty big opportunity here to provide better-quality advice. When it is done well, people are acting on advice – 70% of customers said they acted on it.”

The survey also found that trust might be the banks’ most important non-financial asset. Among retail bank customers participating in the survey, 81% said they either “somewhat agree” or “strongly agree” that they trust their bank to do the right thing, and 75% said they believe their bank acts ethically.

A statistically insignificant proportion of survey participants – fewer than 0.1% – had an unauthorized account opened by their bank in the past year.

The survey was conducted after a series of news stories by CBC Television earlier this year revealed that some bank staff felt pressured to upsell customers on financial products to meet internal sales targets.

The J.D. Power survey found customer satisfaction with a bank increased by 78 index points (based on a 1,000-point scale) when bank representatives asked questions before suggesting a client open a new account.

As well, customer satisfaction increased when bank representatives offered financial advice. For example, overall satisfaction scores were 64 index points higher among survey participants who said they received financial advice from a banking representative.

Overall, 71% of survey participants who received financial advice reported that they followed the bank representative’s suggestion, while 59% of survey participants said they had opened a new account as a result of the advice they received.

J.D. Power surveyed 8,792 retail bank customers of Canada’s five largest banks in June. It was intended to measure satisfaction among Canadian retail bank customers who have: opened a new bank account in the past year on the advice of a bank representative; received financial advice in the past year from a bank representative; or had an account opened without their consent in the past year.

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