Finance Committee on June 12th, 2017

[Pierre-Luc Dusseault, NDP, Sherbrooke, QC]

I hear what you are saying, but although it may not be the main reason, testimony shows that employees have been pushed out or that other reasons for terminating their employment have been given.

My next question, which is also about sales targets, goes to each of you. If you were an advisor at the bank and you could offer a client two options, one that would be very profitable to you personally, that would allow you to earn money, a trip or something, and the other that would bring you nothing, but that would be better for the client, which would you choose?

[Andrew Pilkington]

That's a very easy question to answer: it's the one that's better for our client, every time.

[James McPhedran]

Ditto. Our client satisfaction levels are at the highest they've ever been, and that's for doing that very thing.

[Scott Wambolt]

Yes, I have a similar answer. We are dedicated to doing what's right for the client. Our senior leadership, including our CEO, said that it's all about doing what's right for the client. If that means you don't hit your targets, that would not be our preferred outcome, but if it happens, we're okay with that. Do what's right for the client first.

[The Chair, Liberal, Wayne Easter]

Thank you all.

We will go five minutes in the second round, because we were 10 minutes late starting.

I understand Ms. O'Connell and Mr. Grewal are going to split a question.

[Jennifer O'Connell, Liberal, Pickering—Uxbridge, ON]

Thank you, Mr. Chair.

Mr. McPhedran, you almost got away from me, but I have one question for you, and then Mr. Grewal's going to ask a question.

You mentioned in your testimony that your employees would develop a financial strategy. However, we know and we've heard testimony to the effect that there's a big difference sometimes in terms and in languages. For example, an advisor spelled with an “o” and an adviser spelled with an “e” have very different requirements. When employees at Scotiabank are developing a financial strategy, you've said that the client's satisfaction is number one, but when we know that practices are happening with advisors with an “o” and advisers with an “e”, how do you ensure that it's actually in the best interests of the client and not, even if it's not a sales target, in the interests of whatever product Scotiabank wants to sell at the time?

[James McPhedran]

I have a couple things on that.

We take regulation very seriously. All of our people are licensed appropriately for what they sell.

Our customer experience model is based first and foremost on discovering the needs of a customer. There is a four-step process through that model, but first and foremost are the needs of the customer.

Our people have no product-specific targets, so it's not in their interest to pursue a product sale of any kind.

[Jennifer O'Connell, Liberal, Pickering—Uxbridge, ON]

Thank you.

[The Chair, Liberal, Wayne Easter]

Mr. Grewal.

[Raj Grewal, Liberal, Brampton East, ON]

Thank you, Mr. Chair.

I just want to go back. All three of you mentioned that it's the client first, and not profits. The problem is that you are in the business of making money. Again, we're not making the banks a target here. We're very much just trying to protect Canadians.

There's a cross-section in which the clients' interests, at some point, do not meet the banks' interests, because the banks are trying to make as much money as they possibly can. That's their right, but it sometimes comes at the expense of giving sound, adequate advice to a client.

My question is this. In terms of the upselling that may or may not occur at a teller, are your tellers regulated? Do they have an education? Are there courses that they take, like the Canadian securities course, before they make any comment on investment decisions, even if it's a referral?

I'm asking all three of you.

[James McPhedran]

You began the question with a profit objective. The surest way to achieve business success is through the success of your customers, and that's exactly how our people are focused.

In terms of tellers, tellers have no product-specific goals. Hence, anything that they do in terms of a referral, as you discussed, is just that. It's a referral to have a discussion, but no sale goes through a teller.

[Scott Wambolt]

Similarly, our tellers do not offer financial advice with regard to investing. Any of our advisors with an “o” in our retail network who are offering financial advice are licensed under MFDA or IIROC to do so, but our CSRs do not offer financial advice in terms of how a client should or should not invest their money.

[Andrew Pilkington]

Our CSRs wouldn't offer investment advice.

To your question about when they refer, they are trained extensively when they join the bank on when it is the appropriate time and opportunity to make a referral and when it's not. They go through extensive training before they actually go out onto the front line.

[Raj Grewal, Liberal, Brampton East, ON]

Yes, but in your case, Andrew, there actually are sales targets for CSRs.

Suppose an individual comes into the bank, as in my example before, and a CSR says to himself, “Oh, wow, this guy is pretty wealthy. I should refer him to an investment adviser, a mortgage representative, or a credit application, and so forth, because that's going to help me achieve my sales target.” That would take place at TD, right?

[Andrew Pilkington]

There will be times when the tellers will actually refer customers to investment advisers or wealth advisers when they see that the advice opportunity is there, and often it's actually driven by the customer. The customers themselves will say, “I think I need help”.

[Raj Grewal, Liberal, Brampton East, ON]

The issue I have with that is this, and it's plain and simple. Certain people who come into your bank don't want investment advice and are not comfortable with their own financial literacy. They will actually think that the banks have very smart people. They may get the advice from somebody that they should meet a certain individual who will help them and give them investment advice, and because they trust the bank so much, they're lured into these investments that may not be in their best interest in the first place.

The issue is why a teller is making a referral, even if they're not giving investment advice and even if the referral is made off a corporate or a client profile. In 2017, if somebody wants to make an investment, I'm sure they can figure out how to make that investment.

There should almost be a Chinese wall at a bank to say that if a client asks for investment advice, the teller would refer them directly when asked, but it shouldn't be the other way, as in, “Oh, I see that you have x number of dollars in your bank account. Maybe you should speak to a financial adviser.”

I think that's why you guys had the issues with the sales practices in the first place. It's because in order for the CSRs at the ground level in your banks to make their bonuses, in order to be promoted, in order to become branch managers and eventually to appear before this committee as executive or senior vice-presidents, they have to sell an immense amount at the CSR level. That's the issue we're having here—

[The Chair, Liberal, Wayne Easter]

I have to cut you there.

Do any of the three want to respond to that comment?

[Andrew Pilkington]

I will respond. There were a lot of comments there.

One of them was that everybody in 2017 should feel comfortable around making investments. We know; we've surveyed 13,000 Canadians, and the survey shows that 79% of Canadians don't feel confident in their financial future, so they're actually looking for help.

What we train our tellers and all of our employees to do when they see the opportunity for advice is to actually help customers and refer them to an expert. The customer doesn't have to go with that referral. The customer doesn't have to take the expert's advice, but we feel it's part of our duty to our customers to actually help them with their finances, to help them save time, save money, and make money.

[The Chair, Liberal, Wayne Easter]

Is there anyone else?

[James McPhedran]

Advice is actually a good thing. Some of our most engaged customers have received our advice, and it's helped them, and it has benefited their lives, so advice is a good thing that we provide.

[The Chair, Liberal, Wayne Easter]

I do have one question that really relates to the hearing itself. To a certain extent, we're holding this hearing into bank practices because of the media story. I think all of us have gotten quite a number of calls, so there is some dissatisfaction out there. One of the difficulties for us is that sometimes it can be an “I said, you said” kind of thing. We understand that.

I think we have 20-some submissions that have come in, which are in translation and we haven't actually seen yet. There is a concern, and I guess from my point of view—and I think probably from yours as well—oversight is important to give confidence to the public that bank practices are appropriate, whether we're talking about provincial and federal labour standards or practices surrounding pressured selling and investments, etc.

Are you folks saying that the oversight is adequate at the moment? Is it too much? Is it too little? Where do you stand on that? At the end of the day, we're going to have to express an opinion or a recommendation either for more oversight or that things are all right, or that maybe there should be a stronger ombudsman. I'm sure you would agree that if the Canadian public is confident that oversight is appropriate, it's good for you and for us too.

Do you have any thoughts on that?

[James McPhedran]

I'll begin.

It's important for you to know that we believe in strong regulation, and regardless of who the regulator is that we're working with, that's something we take very seriously. We think the best thing we can do is to have our house in order in a way that abides by that regulation, such that as the oversight occurs, it's reconfirming as opposed to anything else.

I would say that the FCAC and OSFI are doing a very thorough review right now, and we welcome that review. The findings will come, and I think we'll be able to act on those findings.

[The Chair, Liberal, Wayne Easter]

With that, thank you very much for your testimony. We'll suspend for a couple of minutes while the next witnesses come forward.

The meeting is suspended.

[The Chair, Liberal, Wayne Easter]

We'll reconvene, and I'll call the meeting to order. We'll have to ask the media or the cameras to depart, please.

We are doing a study on consumer protection and oversight in relation to the schedule I banks. We have with us in the second session three of the schedule I banks: BMO Financial Group, National Bank of Canada, and the Royal Bank of Canada.

We will start with you, Mr. Dudtschak from the Royal Bank. The floor is yours.

[Kirk Dudtschak, Executive Vice-President, Personal and Commercial Banking, Royal Bank of Canada]

Thank you, Mr. Chair.

Good afternoon, everyone. My name is Kirk Dudtschak. I'm the executive vice-president of regional banking for RBC. I am responsible for almost 25,000 front-line retail and commercial banking employees who live and work in more than 1,200 communities across this country.

Many Canadians know RBC as their local bank as well as a strong business leader, and a company that has existed for almost as long as Canada itself. We are recognized for the quality of our advice and solutions, for being a respected employer, a champion of diversity and innovation, and for our commitment to this country's youth and future prosperity.

Most recently, we were honoured by the fact that our employees and clients have enabled us to be acknowledged for the third time as global retail bank of the year by Retail Banker International. While we're proud of these accomplishments, we do not take them for granted, nor the role we play in this country and in the lives of our employees and our clients.

It's why we constantly listen to them, and use their experiences and feedback to ensure we continue to deliver the advice and service Canadians expect and deserve from us. Therefore, we welcome this hearing to share what we believe and how we operate, and most importantly, to learn if there's an opportunity to do more.

We operate with the fundamental belief that how we achieve results is as important as what we achieve. We could not sustain leading employee satisfaction where 95% of our employees say they're proud to work for RBC and support our values, and generate leading client loyalty results if we didn't work hard every day to make sure that belief is a reality.

We were disheartened to hear reports characterizing our working environment in a way that is not consistent with our culture or our values, with how we do business, or the experience we want to create for our employees, and the experience we want to create for our clients. We deliver advice, solutions, and services to more than 12 million Canadian clients every day, and we need to deliver it with the highest accuracy in a way that not only continually meets but exceeds our clients' expectations.

Of the 2.4 million accounts that we opened within regional banking in 2016, fewer than 0.05% of clients escalated a concern about the way their account was opened. Regardless, we take every client interaction and concern seriously. Clients can raise their concerns with the manager, or online or through our independent client care teams, our regular client surveys, and by contacting the RBC ombudsman. If clients still are not satisfied, they are able to turn to an external ombudsman as well.

We place the same attention and focus on our employees. We listen to them through their managers and their leaders, through our human resources channels and advisers and our confidential employee ombudsman, and through our annual employee opinion survey where we hear from more than 90% of our employees every year.

We invest in embedding our culture and our values, including our values of client first and our values of integrity. They are embedded in our annual code of conduct certification, a requirement for every employee, and in our performance and ongoing awareness programs so we foster the right behaviours and the right activities, one that places clients' interests at the centre of all we do.

We also create a respectful work environment where employees are encouraged to speak up, to seek guidance and clarity, and be assured that they will be supported in doing the right things. As I said, we listen to and learn from our employees and our clients, and we investigate and take action where we need to in order to preserve the trust our employees and clients place in us. Preserving that trust is foundational to how we do business as a company, and we believe it's foundational to how we succeed.

Thank you for your attention, and I would be pleased to answer questions from the committee.