Bank reps under pressure to sell: OSC and CIRO

In particular, regulators found that the use of scorecards to track reps’ sales and other activities are tools that, “not only increase pressure to meet sales targets, but also influence the products recommended to clients, posing a risk to the interests of retail investors.”

That conclusion was seized on by investor advocates, who have long criticized industry sales practices.

“This report confirms what we’ve been saying for years: sales pressure and conflicted pay structures are still deeply embeddedin Canada’s financial system,” said JP Bureaud, executive director of the investor advocacy group, the Canadian Foundation for the Advancement of Investor Rights (FAIR Canada), in a statement.

“There’s a growing gap between what the rules are meant to do and what’s actually happening on the ground. Regulatory intent is being lost in translation — and investors are paying the price,” said Bureaud.

Indeed, these kinds of worries are not new to regulators. Ever since mutual funds emerged as the dominant retail investment product in the mid 1990s, regulators have been grappling with concerns about industry sales practices and potential harm to investors.

More recently, these concerns have focused on the bank-owned dealers, as the banks have taken a greater share of the retail fund business, and started limiting their branch-based reps to selling proprietary products in the wake of client-focused reforms adopted at the end of 2021.

In 2022, the federal Financial Consumer Agency of Canada documented its concerns about the sales culture at the big banks after an extensive mystery shopping exercise found that, “a sharp focus on sales was turning bank branches into ‘stores,’ increasing the risk of banks placing sales ahead of customers’ interests.”

While that report looked at a range of banking products (including bank accounts and credit cards), the joint OSC/CIRO review focused on investments. Rather than posing as consumers, the securities regulators sought insight directly from industry reps themselves.  

“The approach we took on this work is innovative for a regulator,” said Sonny Randhawa, executive vice-president of regulatory operations at the OSC. “It shows how the OSC’s horizon scanning and regulatory functions work together to spot, understand and respond to potential issues.”

Among other things, the regulators’ survey found that 40% of reps said that they believe that performance-tracking tools, such as scorecards, have influenced product and service recommendations to clients; a third of reps say that clients have sometimes received incorrect information about those recommendations; and that 25% said that clients have sometimes received recommendations that aren’t in their interests.

“The OSC and CIRO believe the sales environment, compensation, incentivization and performance tracking may be contributing factors to these results,” the…