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Sales Culture Concerns at Five of Canada’s Bank-Affiliated Dealers

Ontario Securities Commission 
Canadian Investment Regulatory Organization

Executive Summary

In November 2024, the Ontario Securities Commission (OSC) and the Canadian Investment Regulatory Organization (CIRO) announced a coordinated review of sales practices within five large Canadian bank-affiliated mutual fund dealers. This review was prompted by a public report of potential investor harm due to alleged high-pressure sales practices at Canadian bank branches.[1] To better understand the sales culture and environment within these branches, and identify and assess the scale of any potential issues, the OSC and CIRO conducted a survey of registered mutual fund dealing representatives (“representatives”)[2] working in a bank branch for one of the mutual fund dealers[3] affiliated with five of Canada’s banks – BMO, CIBC, RBC, Scotiabank, and TD. The survey explored the experiences and perceptions of these representatives, and sought to understand whether there are any recurring issues that could negatively impact retail investors.

Within the survey, representatives provided us with their views in four main areas:

  • Sales Environment: how the existing sales environment, including compensation, incentives, and performance metrics, impacts the job-related behaviours of representatives.
  • Sales Pressure: the extent to which representatives experience sales pressure in their role, and the potential impact on the products and services recommended to clients.
  • Range of Products: representatives’ views on the range of mutual funds they are able to offer clients.
  • Knowledge: the knowledge of representatives in specific areas, as well as the perceived knowledge of their peers.

A total of 2,863 representatives from all five bank-affiliated mutual fund dealers in Ontario completed the survey. This large sample demonstrates statistical alignment with the broader population on key characteristics, providing a strong basis for generalizing our findings across Ontario.

The results from this survey provide valuable insight into the environment within five of Canada's bank-affiliated mutual fund dealers. We observe that 25% of representatives across banks reported that clients have been recommended products or services that are not in their interests at least ‘sometimes’, which suggests that product recommendations may not always be in the interests of clients.

This issue may be tied to the sales environment, including compensation, incentives, and performance metrics. It may also be tied to the high degree of sales pressure that representatives reported experiencing. Our survey revealed widespread use of performance management tools or updates (e.g., sales scorecards). Scorecards are used by bank-affiliated mutual fund dealers to provide representatives with information on their individual performance, updated at regular intervals. Scorecards can include sales-related targets (e.g., product sales) and/or activity-based targets (e.g., client contact management), which can impact a representative’s compensation, performance assessment, and experiences of sales pressure. In completing our survey, representatives reported that scorecards 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. Given these survey results, the bank-affiliated mutual fund dealers should conduct an assessment of their sales environment, including compensation, incentives, and performance metrics, and sales pressure experienced by representatives, including through the use of performance management tools such as scorecards. Where any of the concerns noted in this report are identified, enhancements should be made to ensure that sales practices align with placing the clients’ interests first.

Regarding their views on the range of products, representatives generally expressed satisfaction with the current range of funds available to them but also indicated that a broader range that includes external mutual funds could be beneficial in offering clients more choices.

Our results also show that representatives may lack knowledge or otherwise fail to provide correct information in certain areas. Notably, one in three representatives reported that clients have been provided with incorrect information at least ‘sometimes’. Additionally, 23% of representatives were not able to identify the definition of Management Expense Ratio (MER), a foundational and important component of the mutual funds they sell which can materially influence clients’ investing decisions. However, representatives scored better when asked to identify the impact of MER on mutual fund performance (12% of representatives answered incorrectly). These results indicate that Canada’s bank-affiliated mutual fund dealers should assess their current training programs and make any required enhancements to ensure that clients are provided with accurate product information.

Taken together, the results of this survey highlight several areas of concern with respect to the sales culture and environment within five of Canada’s bank-affiliated mutual fund dealers. The five dealers should carefully consider what representatives have reported to identify where changes or enhancements may be needed to address the concerns outlined in this report.

Given the information provided to us through the survey data about the sales environment at the five bank-affiliated mutual fund dealers, including compensation, incentives and performance metrics, and experiences of sales pressure reported by mutual fund dealing representatives, we are continuing our work on this initiative. The next phase of the work will focus on obtaining and assessing information, including around the use of scorecards, directly from each of the five bank-affiliated mutual fund dealers related to specific concerns identified in the survey, and will also include meetings with key individuals and requests for data.

This next phase will enable us to obtain an understanding of the sales practices in place and how they may impact the behaviour of mutual fund dealing representatives, as well as any potential impacts to investors. We also want to understand the controls the dealers have in place to address any material conflicts of interest arising from the sales practices, including the compensation, incentives, and performance metrics, and experiences of sales pressure.

Once we have completed our review and analysis of the information from each of the five bank-affiliated mutual fund dealers, we will consider our regulatory tools available and determine whether further action is required to ensure ongoing compliance with securities laws.[4]

Next tab: Introduction


[2] Throughout this report, any use of “representatives” is intended to mean “mutual fund dealing representatives”. We use the shortened form to be more concise.

[3] The five bank-affiliated dealers are: BMO Investments Inc.; CIBC Securities Inc.; Royal Mutual Funds Inc.; Scotia Securities Inc.; and TD Investment Services Inc.

[4] Including compliance with conflicts of interest and suitability determination provisions in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations and equivalent CIRO rules.

 

Introduction

In November 2024, the OSC and CIRO announced a coordinated review of the sales practices at bank-affiliated mutual fund dealers. The review was initiated after a public report of potential investor harm due to alleged high-pressure sales practices within some Canadian bank branches.

As part of this review, the OSC and CIRO developed an initial phase of work to build an understanding of how representatives are experiencing the sales culture and environment within five Canadian bank-affiliated mutual fund dealers, and to identify and assess the scale of any potential issues. This initial phase of work focused on information gathering through a voluntary, anonymous survey sent to all mutual fund dealing representatives working in one of the bank branches of five of Canada’s bank-affiliated mutual fund dealers located in Ontario. The survey was designed to gain insight into the experiences and perceptions of these representatives and identify and assess the scale of any issues that could negatively impact retail investors.

In completing the survey, representatives provided their views in four main areas:

  • Sales Environment: representatives were asked about their existing sales environment, including compensation, incentives and performance metrics, and its effect on motivating various job-related behaviours.
  • Sales Pressure: a series of questions sought to identify any issues surrounding sales pressure experienced by representatives, including the degree to which representatives believe that clients are impacted.
  • Range of Products: representatives were asked for their views on the range of mutual funds they are able to offer their clients (i.e., proprietary mutual funds), and on the possibility of having access to external mutual funds (i.e., third-party mutual funds).
  • Knowledge: representatives were asked a set of questions about their knowledge in specific areas, as well as how they perceive the knowledge of their peers.

At various points in the survey, representatives were given the opportunity to provide brief written responses in open-text boxes. This allowed representatives to provide further insight into some of their responses to survey questions.

This report details the results of our survey. The report is structured as follows: we first provide an overview of the survey methodology, then detail the survey results, and conclude with key takeaways from this review.

Next tab: Survey Overview

Survey Overview

The survey was developed by the OSC with input from CIRO in the fall of 2024. The OSC’s Research and Behavioural Insights Team played a key role in this project, providing expertise in behavioural science and leading the development of the survey methodology, data analysis, and interpretation.

The OSC invited registered mutual fund dealing representatives who currently work for a bank-affiliated mutual fund dealer in an Ontario branch of one of five large banks – BMO, CIBC, RBC, Scotiabank, and TD – to voluntarily participate. The survey was launched on November 26, 2024, and closed on December 13, 2024. In total, 2,863 representatives across all five bank-affiliated mutual fund dealers completed the survey.

Survey Distribution

Prior to releasing our survey, we communicated with each of the five bank-affiliated mutual fund dealers to notify them of our intention to survey their representatives and to request their cooperation. We sent representatives the initial invitation to complete the survey, followed by three reminder emails.

The survey was anonymous, meaning that each representative’s responses could not be linked back to them in any way.[5] Anonymity was necessary to increase the likelihood that representatives would feel comfortable expressing their honest views. The anonymous nature of the survey was communicated clearly to representatives in both the initial email and reminder emails.

The survey sample reflects the larger population in terms of the distribution of representatives across banks and Ontario regions, indicating that our sample is broadly representative of the larger population of mutual fund dealing representatives at each bank-affiliated mutual fund dealer. Our data are weighted to account for small differences between the sample and population. The sample's composition and meaningful size supports the generalizability of our survey results to the wider population of mutual fund dealing representatives.

Next tab: Results


[5] Our existing databases contain the work email addresses and bank of employment for all registered mutual fund dealing representatives. Although we used representatives’ work email addresses to distribute the survey, the survey dataset did not retain any email address data, thereby maintaining anonymity.

Results

The results from our survey of mutual fund dealing representatives are detailed in this section. An overview of the key characteristics of our survey participants is followed by an exploration of the relationship between the sales environment, including compensation, incentives, and performance metrics, and job-related behaviours. We then discuss results related to sales pressure experienced by representatives, as well as the views of representatives with respect to the range of mutual funds they are able to offer their clients. We conclude this section with a discussion of representatives’ knowledge in specific areas.

The results described in this section reflect industry-wide trends that are applicable to all five bank-affiliated mutual fund dealers. Upon an in-depth analysis of our survey data, there were few significant differences among the five mutual fund dealers or the different regions where representatives are employed. Generally, there are more similarities than differences in the views and experiences of representatives across the five mutual fund dealers. Readers of this report can assume that the results and implications discussed are applicable across Ontario and all five of the bank-affiliated mutual fund dealers.

Conclusion & Key Takeaways

This report provides insight on a range of topics from Ontario-based mutual fund dealing representatives working for one of Canada's five bank-affiliated mutual fund dealers. The primary focus of this survey was to gather information about mutual fund dealing representatives’ perspectives on their sales culture and environment and identify and assess the scale of any potential issues.

A key observation from this survey is that one in four representatives report that clients have been recommended products or services that are not in their interests. Our data suggests that this may be tied to several factors, such as the sales environment within the five bank-affiliated dealers (including compensation, incentives, and performance metrics used), a high degree of pressure to meet sales targets, and the frequent use of scorecards to track, compare, and emphasize those sales targets. Representatives reported that scorecards, in particular, not only exacerbate sales pressure, but could also influence the products or services recommended to clients. Collectively, these factors may pose risks that Canadian retail investors’ interests are not being sufficiently prioritized. Given these survey results, the bank-affiliated mutual fund dealers should conduct an assessment of their sales environment, including compensation, incentives, and performance metrics, and sales pressure experienced by representatives, including through the use of performance management tools such as scorecards. Where any of the concerns noted in this report are identified, enhancements should be made to ensure that sales practices align with placing the clients’ interests first.

Regarding the range of products available, representatives generally expressed satisfaction with the existing range of funds available to them, but also indicated that a broader range, including external (i.e., third party) funds, could be beneficial. However, any consideration of expanding the range of funds should address representatives’ perceived barriers, such as a lack of knowledge and potential training requirements for products that they are not currently permitted to offer.

Finally, our data highlight certain areas where representatives may lack knowledge, with one in three representatives reporting that clients have been provided incorrect information about the products or services recommended to them at least ‘sometimes’. Additionally, 23% of representatives were not able to identify the definition of Management Expense Ratio (MER) – a foundational and important component of the products representatives are selling. Although, relatively more representatives were able to correctly identify the impact of MER on mutual fund returns. These results indicate that Canada’s bank-affiliated mutual fund dealers should assess their current training programs and make any required enhancements to ensure that clients are provided with accurate product information.

Taken together, the results of this survey highlight several areas of concern with respect to the sales culture and environment within five bank-affiliated mutual fund dealers. The five dealers should carefully consider what representatives have reported to identify where changes or enhancements may be needed.

Given the information provided to us through the survey data about the sales environment at the five bank-affiliated mutual fund dealers, including compensation, incentives and performance metrics, and experiences of sales pressure reported by mutual fund dealing representatives, we are continuing our work on this initiative. The next phase of the work will focus on obtaining and assessing information, including around the use of scorecards, directly from each of the five bank-affiliated mutual fund dealers related to specific concerns identified in the survey, and will also include meetings with key individuals and requests for data.

This next phase will enable us to obtain an understanding of the sales practices in place and how they may impact the behaviour of mutual fund dealing representatives, as well as any potential impacts to investors. We also want to understand the controls the dealers have in place to address any material conflicts of interest arising from the sales practices, including the compensation, incentives, and performance metrics, and experiences of sales pressure.

Once we have completed our review and analysis of the information from each of the five bank-affiliated mutual fund dealers, we will consider our regulatory tools available and determine whether further action is required to ensure ongoing compliance with securities laws.[10]


[10] Including compliance with conflicts of interest and suitability determination provisions in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations and equivalent CIRO rules.