Who Owns the Client - Part 1

After a successful start in financial sales, I wanted to learn more about my business by gaining experience in a different arena. I applied for, and received, a transfer to the pension department of my large firm. As the pension payments clerk, my main responsibility was to ensure thousands of pensioners from many different backgrounds received their monthly cheques. Or not. I learned that one of the more unpleasant aspects of the job was to claw back payments that had been made to a surviving spouse after a pensioner passed away. Not everyone chose a joint and last survivor option. More on this in a later blog.

You may recall, during the late 1980's, Vancouver was subjected to more than one lengthy postal strike. This caused frustrations for almost everyone, but was felt most keenly by those who relied upon the mail to deliver much needed funds for living expenses. EFT, or electronic funds transfer, was available but looked upon with suspicion by some of our elderly pensioners. I don't believe we had more than 50% of our pension cheques delivered by EFT in those days. Many elderly pensioners relished the opportunity to take a physical cheque down to their bank and chat with the tellers for a few moments while making their deposits. The mail strikes hit them hard.

My job did not require me to take any further action. Pensioners who needed their cheques had been offered EFT in the past and declined. They had the option of coming in and picking up their cheques or paying for a courier to deliver the cheque to their homes. Once these options had been exhausted, I was still left with about 30% of my monthly cheques undelivered to individuals who needed them. My company took no further action; in fact, the pension plans were earning extra interest on the uncashed funds every day. But my conscience couldn't stand it!

These were my pensioners. I spoke with many of them monthly. I knew their names, their kids and grandkids names, where they had worked, what job they had done, etc. I heard about their illnesses, their vacations, marriages, divorces, often things I didn't care to know! I got personally involved even though I would never meet most of them face to face. I had to find a way to get them their cheques.

By now, I knew quite a bit about the operations of a large financial institution, including the fact that each of them had a daily bag of documents, forms, and other mail delivered inter-office via private courier every day. I decided to phone every pensioner who had not received their cheque and ask which bank they dealt with and their account number. I would them hand deliver the cheque to the main Vancouver branch of their bank, usually within close walking distance of my own office, and ask the staff to send the cheque inter-office to the pensioners branch for deposit. Privacy laws would not allow this information to be shared today, but these were different times. I managed to deliver 80% of the cheques I still held on to this way.

So what's the punch line, you ask? It is this: looking out for my pensioners and putting them first did not win me any accolades from my firm. I didn't do it for the praise (although the thanks I received from many clients were heartwarming) but thought there might be some internal recognition for my ingenuity. I was wrong. Not only were my efforts unappreciated, my request to deliver cheques during normal working hours was refused. I did all of this work on my lunch hour each day. I made the mistake of owning the client.

I Didn't Know What I Didn't Know

My career in banking started about 25 years ago as a teller at a national trust company, later absorbed by the Royal Bank. I had a couple of years experience as an account cashier at the old Eaton's, so handling relatively small sums of money was nothing new. I was good at my job and was quickly promoted to a desk job, handling term deposits and mutual funds. As is common with most financial institutions, I was the newest employee so I was expected to handle the majority of the client enquiries, both in person and by phone. It was irrelevant that I knew next to nothing!

I remember clearly one of my favorite clients. He was a young Asian businessman, and would bring in $1,000 cash each week and buy a 5 year compounding term deposit. I understood that this cash was the weekly net proceeds from his small business, where he and his family worked hard 7 days a week. In five years time, he would have these term deposits plus interest coming due each and every week, at which time he could then choose to use the cash for business or family purposes, or reinvest it for another 5 year term.

I continually complemented him and expressed admiration at his financial discipline. He went away happy and I felt I had done a good job with a satisfied client.

Nothing could be further from the truth.

If I knew then what I know now, I would have spent much more time with him, making numerous inquiries prior to recommending an investment perhaps more suitable for his and his family's needs. Here is a partial list of what I would ask him:

• Term deposits produce interest income , which is fully taxable. Would he be interested in discussing other types of investments, which are more tax efficient?
• The term deposits were all set up in his name only. Can he take advantage of income splitting between his wife and his children?
• Is he incorporated, and if so, perhaps these investment should be made in the name of the corporation.
• Has he considered tax sheltering some of the proceeds in a registered retirement savings plan for himself or his wife? She could make personal contributions, or if she was not employed in the business, he could make spousal contributions.
• Does he have any debt, such as a mortgage, that might be a better use for some of these funds?
• Does he have a savings plan in place for his children's education?
• Has he considered making the term deposits joint ownership with his wife? In the event of his premature death, this would at least avoid probate on the deposits.
• We knew that the funds would not be touched for at least 5 years. Did he have the risk tolerance to consider an alternate investment, such as equity mutual funds, that had the potential to grow at a better rate than what interest income was paying?

You get the idea. The point is certainly that, even though this client felt he was well served, he did not in fact receive the advice he should have. And sadly, I know now that even if I had the knowledge, I could not have spent that amount of time with him. Front line individuals must be quick; there is always a line-up.

Things have changed somewhat since I started in the financial business. I don't find that front-line staff are any more educated in providing quality advice. But they are far better trained at spotting and referring opportunities to a more senior staff member. In fact, they are expected to do so and likely have a component of their pay structure based upon their referrals. When you must use a live teller for any transaction (they are called CSRs today, Customer Services Representatives), you will inevitably be probed for a so called "need" that you didn't know you simply must have. "Have you bought your traveller's cheques yet for your summer vacation?" "Have you made your RRSP contribution?" "Have you made your children's RESP contribution?" "You don't have one of our Visa cards yet. Let me give you this pre-filled application. Simply sign here." Every financial institution that I am aware of puts their staff through intensive sales technique training.

There is a huge difference between providng advice and selling products. Far too many investors need advice but are only getting a sales pitch. More on this later.

The Ethical Businessman

For most of his working career, my father was a shoe salesman. He was a district manager for a shoe company, and managed stores and trained staff all around southern Ontario. Some of my fondest early memories were of visiting him at one of his stores and darting behind the curtains into the cavernous labyrinth called the shoe storage area with hallways that seemed to never end.

I started working for my father at age 16, behind the slipper bar during Christmas break from school. My clientele were mostly local businessmen, looking for a last minute gift for their wives. I sold alot of slippers to men, young and old, clueless about the size of their wife's feet, and can only imagine how many returns my father had to deal with in January after I returned to my studies.

In the summers, I graduated to the main sales floor, and learned to fit shoes properly and match a customers request to the proper product. I watched my father and the other sales staff for tips on handling customer requests, and started picking up lessons that I carry with me to this day.

One of the most valuable lessons I learned didn't even strike me as notable at the time I observed it. It was something I took for granted, and I had no idea that it would have a profound effect on how I conducted my own business years later. My father knew his customers and his product like the back of his hand. He didn't even have to go into the storage area to know exactly what he had, and in what sizes. But more importantly, he also made a point of knowing what styles his competitors were offering, particularly if it was a brand that was popular with his customers.

When he ran out of stock, or out of a particular size, he would redirect his own customers to a competitors store, if he knew that store also carried the same shoe in stock. His customers loved and respected him for his knowledge and his honesty; his bosses were not quite so generous with their praise. In their opinion, what my father should have done is convinced the customer to buy a different shoe from him, even if the substitute was considerably different than the original shoe requested. Today, we would call that a bait and switch tactic, something I suspect we all have experienced.

I know my father's ethics were not unique, but they seem unusual today in a world where marketing is designed to separate us from our hard earned cash in exchange for products we never knew we wanted or needed until we were convinced by the sales person. In addition, knowledge levels of sales staff are generally apathetic. Asking if a competitor carries a brand name item that your favorite store has run out of usually elicits a blank stare or a flat no from the sales staff, leaving you to hunt and find the product on your own. Even worse, you may be lied to. I once priced custom drapes at a large downtown department store. As the price quoted was quite high, I asked if they ever went on sale. The saleswoman adamantly claimed that this particular brand of drapes NEVER went on sale. Within a week, I saw a large ad for this department store, with the drapes I desired on sale. I bought them somewhere else.

At first, I didn't realize that I carried my father's passion for ethics and honesty with me as I began my financial services career. I naively believed everyone conducted business the same way! When I began working for a large trust company in the mid-80s, I was taught they had superior products and enough variety that a client never had to look elsewhere for their financial needs. The trust company indoctrinated us in the same manner used by most companies, and we were disloyal if we didn't believe what we were told. Sales staff today, much smarter than I was 25 years ago, refer to this as "drinking the koolaid".

In my next post, I'll elaborate on how difficult it can be to maintain one's ethics while the world around you rewards sales at any cost.