Finance Committee on June 7th, 2017

[Sally Watson]

The targets are set down by head office, I think, and all based on ROE, return on equity. They want to make a certain return on equity each year. That's how the banks state their profit margin. It's about the value of their stocks and keeping the stockholders happy. It's all based on ROE.

There is also something every year called incentive pay. If the bank doesn't make its ROE, you don't get your incentive pay. Incentive pay is kind of like a Christmas bonus. It's usually 1% or 2% of your salary or something like that. If you don't get your ROE, you don't get that. It's just gone.

As well, if you don't meet your sales targets, as I said, you're threatened with the loss of your job. That's pretty tough for people who have been with the bank for 20 or 25 years.

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

Is it different for each branch? Do they set different targets, or are they for the entire country?

[Sally Watson]

The targets are set for the entire country. It varies from branch to branch. It depends on how many customers the branch has and how many staff members. The size of the branch dictates what your targets will be.

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

In your experience, was the target always higher, year after year?

[Sally Watson]

Yes. They became more and more unrealistic, if that's what you mean.

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

You said there are rewards when managers get to their targets.

[Sally Watson]

Yes, there's a reward for the manager.

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

Are there consequences for those employees who don't get to these targets? What kinds of consequences have you been aware of? Are there things like being put on a blacklist of people who will be fired at some point if they don't get in line with the target?

[Sally Watson]

Yes, exactly. Notes are put in your personnel file saying that you didn't achieve your targets. Then you get to sit down with the manager, and he has to say, “How can I help you achieve your targets?” But there really is no help, because it's impossible to do. You can't help somebody to do something that's just completely impossible. They get around it by saying, “Well, I've offered my help. I've offered you this and I've offered you that to make your goals attainable.” But they are never attainable.

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

Mr. Elford, I have the same question about targets.

In investment banking, in the investment sector, is it also the practice to have targets for sales of investment vehicles, for which they're asking to sell more and more each year, so the targets are always higher each year?

[Larry Elford]

I believe it is.

Two years ago, TD caused all of their commission grid payout to be adjusted. If you were a salesman for TD Wealth Management, and you did not produce more than $2,000 a day in fees or commissions, your pay would be cut by 60%.

This is the kind of thing that happened in the last two years to every employee of the wealth management division. My recollection of the policy—and it's online or it's available; it's a public policy—is, “Okay, guys, you either produce over $2,000 a day...”. I'm paraphrasing. I think $400,000 was the annual fee or commission generation required to be at a certain level of payout. Anybody below that is old fruit. You're ready for the grave. “Your fees, your commissions are cut? Sorry, your payout is cut 60% from what it used to be.”

Just last year, two or three people I know in my community in Scotia were unceremoniously met at the office at 8 a.m. and told they no longer had jobs, because they were people who weren't producing a minimum of $500,000. That was the level across Canada. I don't know how many, but I'm told it was between 50 and 100 people across Canada at Scotia. Again, I don't have the details on this, except for knowing of the three individuals in my community who weren't producing $500,000 and were let go.

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

My other question is related to fees. You said that when you sell an investment product, a vehicle, there are fees associated with that, or compensation or other kinds of fees.

Can you tell us what the regulatory framework is for setting those fees? Is the client supposed to know the fees? In your experience, have there been cases in which there have been some expenses and the clients didn't know about the exact fees for those investment products?

[Larry Elford]

Yes, in many instances the fees are as opaque or as well hidden as is the licence of the person calling himself an adviser. In the time that I've been in the business, the licence has been kept behind the back of representatives. No one in the industry wants to tell you, “I'm a salesperson.” No one wants to disclose that. They say, “I'm a wealth manager. I'm a financial adviser. I'm a retirement specialist. I'm an elder estate planning specialist”, any name in the book to prevent them from having to say to you, “I'm sorry, but I'm just a salesperson, and I don't have to place your interests first.”

The concealment applies to the fees as well. There are any number of ways to double-charge a person, triple-charge a person, churn their account so that they pay a fee today, and then move their investment six months from now and they pay another fee.

The latest and the greatest trend in the banking and financial industry is to put all investment clients on an adviser account, with advisory fees, on which they pay 1% or 2% extra on every dollar, in every client account, every day, for the rest of their lives. That would take place whether or not they even have a licensed adviser, so it's a fairly large harvest.

In 2001 RBC's numbers included $35 billion under that process—a fee every day, in every account, for every dollar.

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

I know you are aware of Monday's testimony from the FCAC and the Canadian Bankers Association. What are your thoughts about the Financial Consumer Agency of Canada and the way they regulate, the way they protect consumers, and the work they have done in the past? What are your thoughts on what they said on Monday?

[Larry Elford]

I'm afraid my thoughts aren't very complimentary. I've been in the industry since 1984, and I hadn't really heard of, seen, or noticed any action by the FCAC until this hearing. I hadn't heard at all that they had spoken out to protect investors, until CBC did a program, and then they looked at it. I hadn't heard that they had made any reports on banking, except in 2016, when they made a glowing report on the banking system and said how wonderfully it worked.

CBC showed that was incorrect, unfortunately, and the FCAC may be one of those regulators that what we would do in Alberta, and Ron can back me up on this, is we would trade the regulator for a broken-legged yellow dog. We would take that dog out to my brother Norman's farm, and we would put it out of its misery. Forgive my imagery.

Thank you.

[The Chair, Liberal, Wayne Easter]

Thanks to both of you.

Mr. Fergus.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

First of all, thank you very much.

Thank you, Mr. Buell, for participating over the phone.

I would like to explore that aspect of things, but not the vivid imagery, Mr. Elford. All of your testimony comes back to the notion that there is a lot of internal pressure to achieve certain sales targets at the risk of poor job evaluations or, in several cases, actual termination of employment.

I want to back this up now to another aspect. What is the effect of that pressure on you, either on the investment side or the teller's side? What is the effect on how you treat your customers? In other words, how do you achieve those targets through your customers? Do your customers understand what products they're buying or engaging with? Do they have informed consent or are there efforts to just get to that sale?

[Sally Watson]

Personally, I did not achieve my sales goals. I didn't even try to. As I said, I did this one trick where I recoded a bunch of accounts to be seniors accounts after going through everybody's profiles and figuring out how old they were so that I could do that.

I left the branch banking system and went to the central accounting unit to get away from the sales targets and the sales goals, but I know a lot of people who become terribly ill. They just can't do it.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

Sure, I get that from the employees' side. I'm trying to figure out what the effect was on the clients, on the people, on Canadians like me who are not in the banking industry and trust their banks. I'm just trying to figure it out.

I'm just trying to figure out how the people who did stay—not you—achieved their targets. Did they force a sale on their clients?

[Sally Watson]

They pretty much do force a sale on their clients.

In my branch in particular, which is very close to a university, they sold hundreds of credit cards to graduate students. Graduate students shouldn't have credit cards. Most graduate students will tell you that. They gave them huge limits. There were $10,000 limits for graduate students on credit cards they didn't ask for.

They'd look at their profile, see that they were a grad student, and it was “in you come and here's your credit”. That's not a good thing.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

I can say that did happen to me.

Mr. Elford, what is your experience?

[Larry Elford]

Thank you. It's a great question.

The clients don't know they're being harmed. The fees, commissions, and trailer fees, all those things, are not fairly and fully disclosed. Again, it's just like the licence I held when I was with the bank. During the entire time I worked at the bank—a period of 20 years—my licence, my agency duty, and my duty of care were not disclosed. If that's concealed, then of course the methods of concealment of fees, commissions, and charges are easily confusing. Clients don't know, and they're happy.

There's a difference between fraud and theft. In fraud, something has been taken from you; you don't know about it, and you're happy. In theft, something has been taken from you; you know about it, and you're sad. The types of deception that we are able to practise in the financial industry are a type of fraud that no one knows about.

In terms of the effects on the salespersons, the employees, they become stressed. They are put under pressure. They're told that they have to abuse their clients or be abused themselves by sales targets and those kinds of things.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

That's where I'm trying to go. I understand in terms of the stress of the employees. Again, I'm trying to get down to how this plays out for ordinary Canadians who are clients of the bank.

Let me tell a story. One summer when I was 17 years old, I think, I couldn't find a summer job. It was late in the season so I went and joined a telephone service for a now-defunct Montreal newspaper. Boy, we had to sell, we just had to sell. We sold to people who didn't speak English or French and we got them

“abonnements”. I forget the word in English.

It's subscriptions. Thank you.

That wasn't informed consent. I kept that job for a couple of weeks.

Is it that same kind of high pressure tactics whereby Canadians, again, the clients of these banks, don't realize what they're getting? They're being sold products and services they don't need and have no benefit to them. As a matter of fact, it will cost them money.

[Sally Watson]

Recently—

[Larry Elford]

Go ahead, please.