Good afternoon. My name is Scott Wambolt, and I'm here in my capacity as senior vice-president of CIBC's national sales and service team. In this role, I lead all national sales leadership and business management activities in support of sales performance and service effectiveness for small business and personal banking on the retail side.
Thank you very much for the opportunity to speak with you today about CIBC, our values and culture, and our efforts to put our clients first. At CIBC, we have 43,000 team members who are working hard to build trusted and long-lasting relationships with our 11 million clients. Our number one priority is to put our clients at the centre of everything we do. It's what we want to be known for, and it's the kind of client-first culture we are building. This is true at our bank, regardless of whether you work behind the scenes on our risk team or human resources team, or whether you deal directly with our clients every day. As a bank, our shared purpose is helping our clients to prosper and grow. This means getting to know our clients, understanding their needs, and making sure they get the right advice and solutions to achieve their financial goals.
It also means living our values in our everyday decisions, actions, and interactions with our clients, team members, and communities. To give you some colour on what this means, I'd like to give you a few examples. It means speaking to clients in plain language. Life can be complicated, and it is our job to make sure that financial services are made simple and easy for our clients to understand. It also means taking on our clients' issues as our own and making it right for them by providing a fair and fast resolution. It means having the right escalation processes in place so that clients or employees can raise concerns at any point and have confidence that they will be addressed.
On this note, we should be clear that while the vast majority of client interactions go smoothly and as expected, in an industry with tens of millions of clients and billions of transactions completed each year, issues will arise from time to time. Our commitment is to ensure that we have the proper procedures in place to minimize the risk of issues arising in the first place, and to identify them quickly if they do. If issues do arise, we take them very seriously, investigate them immediately, and take appropriate actions. Our approach to these issues can be captured in three key themes: our people, our processes, and our culture.
Looking at our people, we make an ongoing investment in employee education and mandate that our employees refresh their training annually. In 2016 alone, we invested over $60 million in training. We are continuously coaching our team on best practices, and provide the most current information that will enable them to best serve our clients.
Our code of conduct is also very important. It sets out the principles and standards for our team's behaviour, ensuring that our actions and words reflect our culture. It also sets out expectations and protections for employees to speak up and voice their concerns, including through confidential means. We're also working to ensure that our team is empowered to get to know their clients, understand their goals, and work with their clients to help them meet those goals.
From a process perspective, we are focused on having the right programs, measurement, and incentives in place to ensure that our team models appropriate behaviours and actions. Further, to ensure that these processes and systems are working, we have intelligent monitoring in place. CIBC is absolutely accountable for these processes and monitoring, but we also actively work with various external parties, including our regulators, as they provide oversight to our industry.
Finally, on culture, at the heart of our reputation and culture is a team that puts our clients at the centre of everything we do. For CIBC, this starts with the tone from the top. From the most senior levels, we are committed to reinforcing a culture that puts our clients first and ensuring that this is the lens through which all decisions are made.
We are also committed to building an inclusive and empowered team through a culture of employee engagement. Whether volunteering for one of our community events, participating in learning and development initiatives, or being recognized by peers and management, our culture of engagement helps ensure that we work as one team towards the same goal of putting our clients at the heart of everything we do.
To this end, in 2016 we were recognized as one of Canada's 10 most admired corporate cultures by Waterstone. Our employee survey showed that 86% of employees felt that different points of view were of value in their teams, 89% would recommend CIBC as a place to do business, and 88% were proud to be identified with our bank.
We've also been recognized by Mediacorp as one of Canada's top 100 employers for five years running, and as one of the 50 most-engaged workplaces in Canada by Achievers for the last four years. We've also been awarded “most admired corporate cultures” awards twice in a five-year span.
In closing, I would like to thank the committee members for their time and attention to this topic. We welcome the opportunity for input and discussion here today.
Thank you, and good afternoon, Mr. Chair.
My name is James McPhedran. I'm responsible for Scotiabank's retail distribution network in Canada. In this role I lead the bank's regional and local branch managers and employees and oversee our branch network. I have been a Scotiabank employee since 1996.
I want to acknowledge at the outset that we clearly understand the importance of the issues before the committee. The hearing addresses foundational elements, most important being culture and leadership, and I will address both topics in my brief remarks today.
Let me start by providing you with some context on Scotiabank's operations in Canada. We first opened our doors in 1832, and today we have more than 34,000 employees in Canada, including more than 14,000 employees in approximately 1,000 retail branches. We have more than eight million domestic customers, and we annually process more than 400 million customer transactions.
To better support our employees and serve our customers, we also collect more than one million pieces of employee and customer feedback each year.
Since the focus of the hearing is sales practices, let me begin by addressing that topic directly. We engage with customers in a robust process that includes four key elements.
The first is training to ensure employees are well equipped to support customers.
Next, our customer experience model guides employees to assess customer needs and develop a financial strategy.
Third, we have a variety of feedback mechanisms to ensure we hear from employees and customers regularly.
Lastly, we monitor sales to ensure compliance with our practices.
Scotiabank branches operate such that all of our employees are focused on the needs of the customer. Our tellers do not have sales targets, and branch advisers provide customers balanced advice based on their needs. We monitor and enhance sales practices and processes on an ongoing basis to ensure we are meeting the needs of our customers, and we are confident that our practices are sound. Occasionally there will be times when we don't meet customer needs. When this happens, we want to know so that we can make things right.
I also would like to take a moment to speak more broadly about culture and trust. At the heart of our culture is a singular mission. Scotiabank was founded to help people achieve their financial goals. The values of integrity and respect have always been core to our culture. They guide our behaviour. They define us as Scotiabankers, and they form the basis for our code of conduct.
Our industry is undergoing rapid change driven by customer preferences that are altering how banking services are delivered. The nature of the relationship between banks and their customers is evolving. Of the more than 400 million annual day-to-day transactions I mentioned earlier, more than 80% now take place outside the branch, mostly through online and mobile channels. Our digital transformation is driving many benefits for customers, simplifying their banking experience and offering improved convenience, ultimately leading to higher satisfaction. The changes are also empowering for our people. Digital technology allows us to be more customer focused and to spend more time giving advice.
Advice is a foundation of our retail business and it is core to the value that we provide to customers. We also hear from employees that providing customers with advice, whether it's about purchasing their first home, setting up an RESP for a child, or planning for retirement, is a big part of what they enjoy about their jobs.
Through it all, the foundation of banking remains relationships, and the cornerstone of every relationship is trust. Regardless of how services are delivered, we have never taken this trust for granted.
We have received input from more than 700,000 customers in Canada so far this year, and our satisfaction levels are strong. In fact, the highest feedback scores consistently go to our front-line teams that our customers appreciate for their friendliness and responsive and attentive behaviour.
Let me close by saying that our people take their responsibility very seriously and that we are deeply proud of our team of Scotiabankers across this country. They embody the values of our organization, they work hard on behalf of our customers, and they do so with integrity.
Thank you for the opportunity to participate in this hearing. I hope I have been able to shed some light on Scotiabank's culture and leadership approach, and the strong and enduring values that guide our team every day.
Good afternoon. My name is Andrew Pilkington, and I am the executive vice-president for branch banking at TD Bank Group. I was born in the U.K. and have lived and worked in Europe, South America, and, for the last 14 years, Canada. I am proud to say that my family and I are dual Canadian-British citizens. In my role at TD, I lead 22,000 employees in 1,150 branches across Canada.
I appreciate the opportunity to be here today.
The Office of the Superintendent of Financial Institutions, or OSFI, is our home prudential regulator, the regulator that oversees the stability of Canadian financial institutions by ensuring that they, like TD Bank Group, are meeting agreed standards for capital, liquidity, and leverage, as well as conducting themselves in a safe and sound manner. OSFI also interacts with all the other regulators, both domestic and international, that oversee our individual lines of business.
With respect to the consumer protection rules, of the 22,000 employees in branch banking, those providing core banking services are overseen by the Financial Consumer Agency of Canada, or FCAC. About 4,000 of those 22,000 employees are registered with the Mutual Fund Dealers Association, or MFDA, to sell mutual funds. MFDA members are licensed by provincial securities commissions, and the MFDA is the national body that oversees the Canadian mutual fund industry.
We also have TD employees in TD Waterhouse Canada who are registered with the Investment Industry Regulatory Organization of Canada, IIROC, to provide investment advice. IIROC members are licensed with provincial securities commissions, and IIROC is a national body overseeing Canadian investment dealers.
I think this is important to understand, given the scope of the federal consumer protection regime.
Now, let me turn to the matter that is before this committee.
When we first heard the media report that started this discussion, frankly, we were all very surprised and very troubled. TD has always been a customer-focused organization, with a strong track record of developing internal talent. That's not just our view—we know this from our ongoing surveys that evaluate customer experience and employee satisfaction. These findings are validated by external benchmarks like J.D. Power's consumer rankings and Aon Hewitt's study of top employers in Canada. What was reported in the media does not square with the organization that I, along with all my colleagues at TD, know and respect.
Soon after the allegations appeared, many of my colleagues and I spent time travelling the country and meeting our front-line people to talk with them face to face. There were two clear messages in the feedback I received: They told me the way TD is being portrayed in the media does not align with their experiences, and they also told me that if such problems are identified, they expect me, Andy, to stamp them out. I couldn't agree with them more.
In any large company, some challenging situations will occur that need to be dealt with. We have processes in place to monitor sales practices, detect issues, and address them if they do arise. It is our vision to be the better bank in every aspect of how we run our business, how we treat our customers, and how we support our people.
We constantly look for areas of opportunity and ways to improve, and this matter is no different. I can assure you that we are again looking at ways we can improve our processes to better monitor, identify, and deal swiftly with any potential inappropriate activity.
Our mission at TD is simple: to enrich the lives of our customers, communities, and colleagues. In our branches, day in and day out, our people fulfill that mission by welcoming customers, understanding their needs, offering them helpful advice, and enabling them to meet their own goals and aspirations.
Thank you very much.
Thank you very much, Mr. Chair.
First of all, I want to welcome our witnesses to Ottawa.
Welcome to your Parliament. It is a pleasure to have you here.
Thank you for all the comments you provided at the beginning. I have to tell you that, if we go by your comments, there is actually no reason to hold these committee sessions. I can assure you that we have also heard some other testimony from Canadians, from former bank employees, and from the Canadian agency that regulates your industry.
Lucie Tedesco, the commissioner for the Financial Consumer Agency of Canada, told this committee that FCAC staff have been asked to review banks' sales practices. She told this committee that the FCAC is “assessing whether sales targets and incentive programs are contributing to sales practices that lead to poor outcomes for consumers.”
Let me just ask all three of you a series of questions. Be very brief, if you could, because I only have a certain amount of time for you to respond.
Has your bank been approached to provide information to the FCAC in the course of this review? If so, is this review specific to the practices of the head offices of the banks or to the branches of the banks?
Second, are there mechanisms in place at the head office to monitor the practices of what happens in your branches, particularly in relation to sales targets and incentive programs? If so, can you please describe these mechanisms? If you don't have these mechanisms, can you explain why not?
Sure, yes. FCAC and OSFI have issued comprehensive requests for information and our teams are very actively putting responses together for them.
In terms of the second question, yes, we have a number of different lines of defence, so to speak, in monitoring sales practices, including, and this cannot be understated, making sure that we hire the right people who completely understand our code of conduct and our core values and seek to embody them in everything they do.
We also hold the business responsible for ensuring that they understand what's driving their sales results. We have intelligent monitoring in place that can point out any outliers, and then the business is responsible for investigating and understanding what's driving those outliers. That's reinforced by our finance and risk teams and compliance teams that override, and their mandate is to question the business on those sorts of outliers.
Backing that up is our audit team, which routinely goes through the business at a very detailed level, ensuring that all policies and procedures are adhered to.
Sure. Our code of conduct is clear, but I think it starts even before the code of conduct in the tone from the top at CIBC, and that's about putting the client first in everything we do, making the right call on behalf of the client every day.
Growing our enterprise over the long term is another key component of our mandate.
Some of the sales practices that you referred to in the media are absolutely unacceptable to CIBC. If any employee feels this is being pressured on them or they observe this behaviour, they have a number of means to make management aware of this, including going to their manager. If that's not an appropriate path or they feel they would like to do something else, they can go to their one-up manager or involve their HR representative who's usually very close or on site.
Then we have a number of other escalation paths that can be completely confidential. If they feel they would like to refer something confidentially we have our confidential ethics hotline, our corporate security mailbox, and our ombudsman's office.
When we look at our front line and how we compensate them, the vast majority of their compensation is their base salary. A relatively small part of their compensation is variable and within that variable component sales targets are one component, but an even more important component is customer satisfaction.
We poll tens of thousands of our customers every month as they have interactions, whether it's in branches or over the phone or even digitally, and we'll ask them if they were satisfied with the advice they received, if they felt they got good service. That's the biggest component of how we reward the variable components, which is relatively small. We aim for that equilibrium, that balanced approach, that was referred to by my competitor.
Our goals are not product specific so we don't say to people in the branches or on the phone that they have to sell x number of a certain product, be it a mortgage, a credit card, or whatever. They're aggregated, and we're looking to get a real balance of what customers need—customer-centric goals—and not what products we necessarily want to sell within the bank. It's very customer focused, and it's up to the individuals in the branch to spot the needs and sell those products that fit those customers' needs.
Gentlemen, welcome to the House of Commons. We deeply appreciate the quality of the people we have in front of us today.
I will, in the same spirit as that of Mr. Fergus, ask one question of all three of you.
Gentlemen, you spoke about advising people in your business and about having no sales targets. Everything is going well. You say, “We are here, first and foremost, for the people and the customer.” That's not exactly what we have seen on TV and not exactly what we heard two days ago here in this parliamentary committee.
I was wondering what kind of watchdog you have in your business. When I talk about a watchdog, it's someone who can listen in on a phone call when one of your employees calls to speak to a customer. Do you have that kind of watchdog who can just listen in, without the knowledge of your employee?
We record every call that comes into the phone channel. If there is ever an issue and a customer complains about something, then we can go back and actually listen to that call in its entirety. Every single call is recorded and held indefinitely.
We have regular monitoring. There are teams of people whose sole responsibility is to actually select calls at random and listen to those calls. Where they see that an employee has not necessarily done the right thing in terms of the advice offered or that they need some refresher training, then we'll go away and do that, and coach the employee. There is regular, ongoing monitoring by the actual line of business. Then, of course, we have partners in compliance, for example, who will come in. Audits, as well, will happen in order to ensure that everybody is doing the right thing.
My thanks to the witnesses for being here. I feel this is an important time for our study on bank behaviour.
Up to this point, I have not really been reassured by your comments because you have to an extent denied that there is a problem with the culture. You repeated what the Canadian Bankers Association has said, that having sales targets contributes to the culture that places the client first. However, those who have worked in the banks have actually told us the opposite, that sales targets have resulted in clients not being a priority.
I first want to talk to the TD Bank representative because that bank was mentioned on a number of occasions in the testimonies that I have received from former employees. Some of them talked about a culture that made them feel obliged to sell products if they wanted to reach their targets. So they put their own interest or the bank's interest before the clients' interest. To reach those targets, employees were therefore sometimes obliged to do things that may or may not have been legal.
Are your employees required to go as far as falsifying documents and providing products without the clients' consent in order to achieve the targets you set for them? Do you recognize that this is a problem in your bank? Are you aware that the problem exists in your bank?
We, obviously, do not encourage employees to falsify documents. It is not a frequent occurrence. When it does happen and there's an example of forgery taking place, we move quickly to an investigation, and we would terminate that employee forthwith. We would never encourage any underhanded dealings and fraud like that. It's fraud. It's against our code of conduct. We're very clear about that.
When employees come into the bank, they actually all read the code of conduct, and they attest that they will follow it. That's an annual event, as well, so they have to reread the code of conduct and attest to it.
In fact, let me just read one or two sentences from our code of conduct from the piece that actually covers sales misconduct. It says:
...whenever employees are servicing customers or providing advice or recommendations, we must deal fairly with our customers. As such, we must not allow our desire to increase our performance results to come before our focus on our customers.
So, we're very clear in the code. We back that up, as I mentioned earlier, with a lot of different systems and processes to ensure that if we see any behaviour that is undesirable, that is not in keeping with customers' interests, then we act very quickly.
I would like to ask the two other witnesses about the code of conduct.
In the last session, we were told that the bank did not consider it a priority to make that code of conduct known to its employees, that they received ongoing training, specifically about confidentiality, meaning the protection of personal information, and about the misappropriation of funds.
That's fine, but do you also provide regular training on this code of conduct, if you have one? Is it public, so that consumers can become aware of the employees' code of conduct in the bank they are doing business with?
Thank you, Mr. Chair, and thank you gentlemen for being here with us today.
A lot of the questions are very much focused on the macro level of your code of conduct, what's in the bank's culture. Let's go for a second to the micro level, which is a customer walking into a bank.
I'd like to hear from all three of you. If a customer walks into the bank, and let's say he has modest savings of about $10,000 to $15,000—that's actually a substantial amount. Would a teller at each of your institutions, when looking at his balance, be asking the customer the question, “Have you thought of investing your money?” It's a yes-or-no question.
The issue I have is it's no secret that if you need a loan or investment advice, you can go to a bank. I don't think anybody across this country, whether that person is a newcomer, a Canadian who was born and raised here, an elderly person, or a student.... You know that if you're in need of investment advice, a student loan, or a car loan, you'll probably call your bank first.
That's why it's troubling that when customers come to a bank—they're just there to conduct their daily banking—that they're obviously bombarded with investment opportunities or opportunities they may not even know about.
The second question is this. Why do your banks and your institutions pre-approve clients who aren't asking for credit limit increases? That's a deceptive practice in itself. Why are you pre-approving people for a higher credit limit when they haven't even asked for it? What's the logic behind that at your banks? If it doesn't go to sales targets....
I'll give you an example. I walk into one of your branches, and I have a credit card with a legitimate limit. I don't need a higher limit, but I've been pre-approved. The person who brings it up to me is a teller who, in this case, I have just met for the first time. This person thinks he or she knows my financial history and profile well enough to offer me a pre-approval of a substantial increase in my credit line, my credit card, and a mortgage, by the first time I'm coming to deposit a cheque. That is very concerning.
Andrew, you mentioned that when you heard the news, you guys were shocked and awed. The funny thing is, on this side of the House, I was not shocked at all. I have friends who went through business school with me and who worked at a lot of your institutions. They all all know that if you perform, you do very well at the banks. Good for them, right? But if you don't perform, you're out really quickly.
I want to know why you guys think that pre-approvals of applications, when somebody is not coming to apply for credit, is a legitimate sales technique.
Thank you to our witnesses for your testimony today.
I would like to continue on some of the discussions we've had thus far.
When Ms. Tedesco came in, I asked her specifically if she had all the powers she needed to run a full investigation. She said, “Yes”, which is helpful to me. She also mentioned that each one of your CEOs had said that they would give whatever information was required so that she could do her job. I appreciate your being here so we can do ours, making sure that these agencies are doing the work they should.
I've heard that there are systems in check and that there are different levels of codes of conduct, etc., but given all those things, we still have reports—that are allegations but reports—on the news channel outlining that people have felt something is horribly wrong with their experience of your system. How can you square that, what you've told us here today about having scrupulous programs for rooting things out, with ongoing concerns where the only relief people feel is that they go to the media? I need to know why that exists.
Maybe we'll start from my left, and we'll move all the way down.
Thank you all for being here.
I have some specific questions to your testimony, so it might not be all three on one question.
I'm going to start with Mr. Wambolt along the line that you just mentioned in terms of monitoring.
With all due respect, you're a senior vice-president, do you really think that when you're standing behind the tellers they're not going to act maybe a little bit differently when you're there than when you're not there? With that being the case, have you ever done any monitoring with mystery-type shoppers?
Thank you. I really don't have a lot of questions, only a couple of comments for clarification. I believe my colleague might have another question or two.
First of all, when we started this study I suspected we would see exactly what has happened. We have testimony by employees or former employees saying one thing and we have testimony from the employer saying pretty much exactly the opposite. I suspect that when we have our other three witnesses, it won't change very much.
One of the things that concerns me is that this committee does not have the investigative powers, and we had the FCAC before us earlier. I'm glad to hear that is an extensive undertaking, because I suspect it's not in anybody's interest to have these rumours continuing to swirl around. I'm happy to see that.
The other thing that I think is difficult to interpret is at what level does upselling take place within the banks. I think that's where some of the confusion might come in. I'll give you a good example. We made a study earlier on so-called tax havens. Consistently throughout that discussion, the phrase “tax evasion” was interchanged with “tax avoidance”. They are two entirely different things. Tax evasion is illegal and tax avoidance is not illegal.
It seems to me that in the banking business, upselling product—and you can call it what you want and the employees can call it what they want—in essence is part of the bank's business. It is to assist in making the customer more wealthy or doing what is good for the customer. I think part of the problem is where some of this is taking place.
I just want to get clarity from each one of you. I think I heard it right. Upselling does not take place at the teller level. Can you confirm that?
This past weekend when I was back home in the riding, I had to go to the bank to pick up a new credit card, because I had lost one. It was a TD card. I picked up this pamphlet called “Coercive Tied Selling” that was right at the front counter. I was kind of surprised that it was there, and I was actually happy that it was there. It relates to section 459.1 of the Bank Act and what people can't do in terms of tied selling. I was happy to see that it was there and available for all the customers when they go to the counter to make an appointment—not to the teller but to the counter. I applaud that. It was interesting to see.
I understand the way a bank works. I worked at one for many years. I understand that there are tens of thousands of Canadians who work in banks. Their livelihoods depend on them, and for the most part, they do a bang-up job. Your customer service satisfaction surveys show that, but obviously a number of employees have gone to what's called “Go Public” and have communicated that they feel they're being pressured to meet sales targets.
On top of that, the FCAC, on March 15, announced that they would begin a wholesale review of business practices by the banks. I'm glad to hear you're co-operating as they do so. As a committee, I think we will look forward to seeing that report when it's issued.
Has the culture changed in the institutions in a non-written manner so that maybe customers sometimes don't know that they're getting a credit-line increase? Maybe that's not being communicated for a non-teller type of person in order to meet certain targets and so forth. Has that culture changed?
Also, with that, are there sufficient checks and balances—because that's what it comes down to—so that people are being rewarded, yes, but not at the expense of customers taking on undue credit risks and increased secured or unsecured debt? We need to ensure that. We need to ensure a safe and sound banking system, which we have in Canada. We came out of the global crisis unscathed, if I can say that, and we need to maintain those high levels of satisfaction with service.
So there's the culture and whether the checks and balances are sufficient. Let's go across the panel, please.
We're always developing our culture. The world around us is changing pretty quickly, but one common thread for decades now at TD has been the customer. The customer is at the centre of everything we do. An example would be the number of hours we're open. We're a very customer-centric organization.
Our CEO and the senior leadership team over the last year have developed a new framework for what we are calling shared commitments and have shared it with the entire bank. It has five key foundations. The number one foundation is “think like a customer”, so that's very much a part of the fabric of what we do at TD.
From a checks and balances perspective, you've heard a lot about the checks and balances we have across all three banks. We think we have very robust processes here, but we're not being complacent, and we're not saying we're perfect. I think there's an opportunity now to look, as I mentioned earlier, to tighten up, and to make the appropriate tweaks and adjustments so that we make it even stronger.
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?
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.
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—
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?
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.
Mr. Chair, honourable members of the committee, thank you for having me today.
My name is Lucie Blanchet. I am Senior Vice-President, Strategy, Distribution, Solutions and Processes Retail Banking at the National Bank of Canada.
First, I'd like to say that we have carefully followed the events of the past few months in this country and elsewhere, the events that led up to today's testimony. We are sensitive to the thoughts that have been expressed. Our business model is based on trust established over time with our clients, and it must be renewed continuously.
Very briefly, in the next few minutes I would like to introduce you to the activities of the National Bank and the context it works in, the importance we give to the balance among stakeholders for the success of the Bank, and finally the primordial importance we place on ethics and integrity in our operations.
The National Bank was founded in 1859 in Quebec, and it offers integrated banking services to more than 2.3 million individual clients, and some 130,000 corporate clients. It manages assets of $239 billion. The National Bank has 445 branches and more than 100 stock brokerages.
Geographically, we conduct our activities mainly in Quebec, New Brunswick and Ontario. We also have a presence in certain other metropolitan centres in Canada, such as Winnipeg, Calgary and Vancouver.
The bank provides leadership in several areas, such as agriculture, technology, energy, real estate, health and government financing.
The bank is an important employer and provides work to more than 21,000 employees. Last year it was nominated for the 12th time as an employer of choice.
The bank is an active player in all of the communities where it is present. Last year it contributed over $25 million to various Canadian organizations. The National Bank's activities are conducted mainly in Canada, where 95% of its revenues are held.
Our enterprise evolves in a business context undergoing profound transformation. Our clients want to interact with us in a personalized way using the method of their choice at a time that suits them. Our ambition is to offer a distinctive experience based on accessibility, simplicity and the proactivity of our solutions. In order to do so, we have to continue to adapt and perfect the necessary agility to meet their expectations.
Our organizational culture is based on three pillars: balance amongst stakeholders, respect for our corporate values, and sound risk management. Reaching a balance among stakeholders is an omnipresent goal in our organization. This is directly reflected in our performance management framework. These stakeholders are our clients, our employees, our shareholders, our community and our regulatory tools. The balance among each of these parts allows us to assure the sustainability of our organization in the short, medium and long terms. This message is rigorously communicated to all levels of the enterprise.
We attach a great deal of importance to respecting our values: a client-centered approach, rigour, accountability and collaboration, in order to create a stimulating work environment for our employees. Risk management is also at the heart of our operations and it is an inherent part of our corporate culture.
Finally, ethics and integrity are crucial to our capacity to ensure the success of the bank and its long-term survival. As a frame of reference for our employees, they are the basis for the trust placed in our institution. All of our employees, from the moment they are hired, adhere to our code of ethics. This code specifies what is expected from each of our employees, our managers, and our administrators in the performance of their duties.
The bank has several mechanisms in place to allow clients and employees to report any ethical breach or undue pressure. Among the mechanisms in place for our employees are the managers of our different services, human resources, the compliance sector, the employee ombudsman, as well as an annual survey on our work environment.
For their part, our clients can count on the employees in all of our points of service, social networks, the client ombudsman, and several client satisfaction surveys to express any dissatisfaction or discomfort. These practices allow us to maintain a stimulating work environment and ensure a dialogue based on trust with our employees and clients. We are always open to suggestions on ways we might improve.
To conclude, we are sensitive to the circumstances that have led to today's discussion. The organizational culture of the National Bank is based on the balance among our shareholders, our values and the sound management of risk. That is the culture that will continue to frame the governance of our enterprise, our human resource practices, all of our operations, and the daily activities of our employees.
Mr. Chair, I would be pleased to answer questions.
Good afternoon, Mr. Chairman. My name is Andrew Auerbach. I'm responsible for distribution in our personal and commercial business in Canada, so that would be the 940 branches in Canada as well as our commercial bank, and the 12,000 employees on our teams. I'm pleased to join my counterparts at today's hearing and to provide BMO's perspective and experience on the issue of sales practices. What we've all heard in recent news reports is disappointing. We do take this matter very seriously. The issues expressed are not consistent with our approach of delivering a great customer experience. We strongly believe that our practices are oriented towards helping our customers.
BMO's vision is to be the bank that defines great customer experience. We pursue this vision by focusing on building and strengthening our long-term relationship with each of our customers. Fundamental to these relationships is listening closely to our customers, making sure that we understand their needs, and that we see things from their perspective so that we can help them manage their financial needs now and in the future. Frankly, we can't do that if we are selling products and services that our customers don't need. That's not the right thing for our customers, and it's not the right thing for our employees. Instead we believe that we're in the business of helping our customers choose products and services. The question of whether a product or a service is right is measured not by a sales goal but by our promise that we're here to help.
At BMO we know that the only way to deliver on customer promise is by ensuring that our employees are fully engaged and motivated. We are people first and bankers second. We strive to put others first through listening and understanding one another's perspectives. We ensure that our employees have the knowledge, the skills, and the support required to deliver a great customer experience. It is also important, though, to have a robust set of measures and governance in place to make sure that what we believe is happening in our customer interactions is, in fact, happening. To that end, we have created a culture that is anchored on our customer experience vision and that reinforces that we must always do the right thing. Our employee goals and how we evaluate performance are balanced between the “what” and the “how”: what we are trying to achieve and how we achieve our goals by ensuring that our approach is always focused on our customer and their unique needs. This approach to goal setting is also reflected in a number of criteria including customer experience, risk management, demonstrating our values, and, of course, performance.
We have systems and monitoring in place to ensure that our sales are driven by customer need and usage. We have a defined process for customers to raise and escalate concerns including the involvement of independent bodies. Each concern is investigated and actioned. We also have audits and reviews of our policies and our processes to ensure that we have the proper integrity of our practices in place. The rigour with which we safeguard our policies and our processes reinforces our confidence in the integrity of BMO's practices. As well, we have fostered a culture in which we are all protected from retaliation. Everyone at BMO can voice concerns without fear. Most importantly, we continuously invest in our employees to ensure that they have the knowledge and the skills to help them help our customers.
Mr. Chairman, BMO welcomes the opportunity to be part of this discussion, and I look forward to answering your questions.
Yes; once again I'm going to have to repeat what I said last week. You know, in the House, I am so modest and reserved that my voice does not carry. So I'm going to speak a little louder.
Mrs. Blanchet, as a director and key person at the National Bank, you are aware that there have been some very critical news reports about the Canadian banking world. You will also know that this parliamentary committee has over the past few weeks heard some very alarming testimony. People have said that today, a great deal of pressure is still being exerted on bank employees to sell financial products, even if this puts people in a dangerous financial situation.
First, I would like you to tell us why in your opinion banking services are not like other services. A shoe salesman, for instance, has to sell as many shoes as possible, but people who work in your business should not be engaging in high-pressure sales.
I will also make a brief remark: the National Bank was not mentioned in the CBC reports.
That said, I'd like to go back to what I was saying earlier to our other guests representing the three other large banks. The testimony we heard outlined a highly problematic internal culture. On the one hand, bank representatives tell us that their culture puts the client first, but on the other hand, employees tell us that the culture puts profits, rewards and reaching sales objectives first.
I am trying to reconcile the two points of view, to understand what the real culture is when you work in a bank. I'm not talking about what people tell us and how they want things to appear.
I wonder if you could confirm that your respective banks have sales objectives, a reward system, and sales objectives for employees. Can you tell us whether this is or is not the case in your enterprise?
I will be brief, but it's important to put the financial objectives in perspective.
The first component of the performance management framework is client satisfaction.
The second is operational quality and risk management.
Corporate values constitute the third element.
The fourth is employee engagement.
Financial objectives are the fifth element.
The financial objectives are not given more weight than the other elements. In fact, our corporate values are considered the most important thing in our enterprise.
Thank you all for being here.
I want to ask a question that's similar to Mr. Dusseault's line of questioning.
You're all senior VPs or executive VPs. How do you ensure, from the top down, that the behaviour at the branch level is appropriate and fitting with these values? Mr. Dusseault used the example of shaming on a whiteboard. We also heard testimony—and you three have been consistent with the three earlier representatives from the bank—saying that sales are not the only factor in performance reviews.
However, it's a factor, and what happens? We've heard testimony from employees who say that branch managers don't explicitly say your sales are bad. If they don't meet their sales targets, the branch manager or supervisor would call them into the office to talk about getting their sales up. Then, if they still didn't get their sales up, they'd have a note in their file saying they were a troublemaker or they don't work well with others. That would then go to one of those other categories of performance.
How do you ensure that the branch managers or supervisors are recording the disciplinary action appropriately, especially considering that a branch manager's or supervisor's bonuses and trips, as I said in the previous panel, are contingent on the overall branch meeting some of their targets?
How do you make sure, if these are truly the policies from the top, that they are actually trickling down, at every level, so that there's not some manipulation of people who aren't hitting their sales targets?
There are a couple of examples that I could give you.
One of those is that all employee corrective action cases are reviewed and managed by our employee relations centre. The manager will call in and review the case, and those individuals at employee relations will coach that manager on handling it, or they will help objectively assess that case to ensure we're being fair and balanced with that employee. We also, as I said earlier, do an annual employee survey. We consistently do round tables where regional vice-presidents, regional presidents, even myself, will be in market to listen, to try to understand where there are issues and opportunities.
Specific to the employee survey, we review not only the scores on that survey right down to the manager level, but we also review the verbatim comments, looking for the nature of concerns that employees might have. Again, we can use that information to either coach a manager or ensure that improvement plans are put in place at that branch level to identify issues, or to allow us to learn and enhance our programs overall.
I'm going to move on, but if anyone else wants to jump in on this next question, you can. It's also relatively broad.
My colleague, Mr. Deltell, somewhat compared the sales target of a shoe store. This is not the first time that there's been testimony and conversations around the appropriateness of commissions or sales targets. I have a real problem with that, when there are endless numbers of shoe stores. I know there's not a lot of regulation, so there is a big difference when you have a private company or private enterprise that wants to solely focus on sales and profits. When we're talking about banking, there is a lot. For example, it's not just anybody who can open up a financial institution. Not just anybody gets the backing of the federal government and Canadian tax dollars essentially, to ensure that it's stable and regulated in a way that protects everybody.
Do you share the same view that it should be profits first and that sales targets are a good way to ensure your employees are meeting the objectives of the bank, or do you see that there is a service you owe to Canadians, given that you have protections provided by Canadians as well?
It's very important to have the context as to what we're trying to do in branches. What we are trying to do in our branches—and I believe we're doing this well—is deepen the relationships by guiding our customers.
I want to be very clear that we would never suggest selling products that are not appropriate for the customer. That's just not consistent with who we are as a company, and it's not how you build long-term relationships with customers. I'll just describe a little what we're talking about in a branch. It's asking questions of the customers to better understand and to then be in a position to guide them with solutions that are appropriate for them.
As you know, banking can be very complicated. I know that this committee has talked about financial fluency, an area we're very strongly committed to at BMO. These are very complicated matters. Oftentimes, when we have these conversations with our customers, our customers actually didn't know there were other solutions available for them.
To take it one step further, we've talked extensively about how we measure customer satisfaction and how we want to make sure we're getting it right for our customers. They tell us very clearly in this research that, in fact, when we do offer solutions, when we guide our customers and talk about things they didn't know about, they're actually more satisfied, from a measurement perspective. This is because we've taken that interest to deepen the relationship, not to sell products inappropriately, but to better understand their specific needs.
I'll just underscore a comment I made in my opening comments.
We have a duty to this country and to our customers. We understand that. We have a privileged position in their lives. With that comes ensuring that we do well by our clients, both in terms of helping them live their lives better today, but also in terms of helping them achieve their long-term goals. With that comes a responsibility to ensure that the advice and solutions we provide are appropriate for that customer. That's at the core of who we are.
Our vision is “to be among the world's most trusted...institutions.” Our purpose statement is that we help clients do better and ultimately thrive, and help communities develop and ultimately prosper. Those are the things that guide our actions. Our goal is to build long-term client relationships.
Clients with a chequing account have been with RBC, on average, 19 and a half years. It's those types of long-term relationships we're trying to build. Also, watch for the behaviour and issues you're calling out and that employees and clients call out when they raise concerns with us to ensure we're not only doing well by our employees, but also by our clients for the long term and for this country.
Thank you to our witnesses for coming here and explaining a little of their experiences and thoughts on this important matter.
We've had three other bank employees come in today to explain the practices. Again, we heard that there are systems and codes of conduct that need to be followed. This is something every bank takes very seriously because banking is a trust industry. It's highly competitive. There are more options available. If people don't like the colour of your new logo, I'm sure there are lots of people who would love to take their business.
That being said, I still have heard two different sets of responses. First, there are these serious allegations that employees themselves are making to different news programs. Second, there are the internal systems you speak about. I'm trying to square the two of them together. The last panel that came forward said that they take these allegations quite seriously and have revisited their approaches at their respective banks.
How do you square the allegations that have been made quite publicly by certain employees of certain banks with your presentations, with your practices that you've portrayed here today? We'll start with that.
I want to be clear that we are not in any way trying to be dismissive of what we've heard. These are very large businesses. In fact, we do over 200 million interactions every single year, and while I want us to get it right every single time, we don't. What I've tried to describe is more the approach we take when concerns are raised.
Mr. Albas, you described two scenarios. One scenario was around what you've heard from employees. In this perspective, it is deeply embedded in our culture that we are constantly encouraging our teams to feel free to speak up and be candid, and we have many mechanisms in order to do so. Some of these are confidential and anonymous, if employees are not comfortable talking to their manager, or to their manager's manager, or perhaps to me.
We do have a lot of rigour around these approaches. However, from time to time, there is inappropriate behaviour. My assurance to the committee is that when these situations are identified, they are thoroughly investigated and reviewed case by case, and appropriate action is taken every time, particularly in terms of the spirit of what we are trying to do as a company.
With respect to customers, if I may just go to that side of it, we also have many mechanisms to raise concerns, both in the branch and at higher levels of escalation, which might include me or executive resolution teams, local leadership in the market, and, of course, our ombudsman for situations that we don't feel can be adequately resolved. Finally—and these are quite minimal in the nature of the overall number—there is a very clear path to escalate, as you know, to the ombudsman for financial institutions.
Our employees have several means at their disposal to express any dissatisfaction, complaint, or any breach of ethics they might witness. Of course, first there are the first level managers. At our bank, the managers are very active in the field.
In addition, we have an independent, decentralized human resources call centre. Employees may also call our labour relations sector directly. We have a corporate security sector, and a compliance sector. As a last resort, we also have an employee ombudsman.
One of the practices that makes our corporate culture different is the fact that we are very close to our employees. Since we are a smaller organization, our management meets with 3,000 to 4,000 employees a year, and has for several years. Management takes part in 300 to 400 activities directly with employees.
And so we have several mechanisms allowing us to ensure a good work climate. Employees feel very comfortable using them, mainly because when they do so we act to implement the improvements they suggest.
I'll build on the previous comments. We do take this process very seriously, and we take all feedback we get from clients and employees seriously.
Through the work we have done, whether it's investigations around potential fraud, falsification of signatures, or references to selling clients products they don't need, our review has demonstrated that there is no systemic issue. They do happen periodically, and we have mechanisms in place to listen and watch for those, but it's not systemic.
I would say, though, that we use this not just to deal with individual situations, but to strengthen our programs. Over the 20 years I have been involved in performance management, our performance program has changed a lot, and it is continuing to shift more and more to a greater focus on activities, behaviours, and client loyalty to ensure that the balance we are talking about here is in place.
Our programs have also changed so that the calibration we put into the programs doesn't create the unnecessary sense that the performance objectives the employee or the team has are unrealistic. Where we find out that they are, we make adjustments to ensure that they are fair and that the basis of setting those objectives is objective.
The issue I have with this, which I brought up in the first round of testimony too, is that if you put a guy such as me in as a teller in my neck of the woods, my sales target would be through the roof just because of my ability to interact with people from my community, my ability to speak in their native tongue, and my ability to convince them of what they do not need.
In my experience, when I go to branches, especially in new communities where they have a high population of immigrants or small business owners who might be very successful in the business they know in terms of construction, landscaping, or trucking, but aren't very savvy when it comes to what to do with their money, that's where we're having a big issue, at a branch level, in terms of the CSR, or the teller, or the client adviser.
I go back to you, Kirk, to RBC. When you say “client adviser”, is that the regulated adviser or the unregulated advisor, the difference between the “o” and the “e”?
—and say, “Oh, you're an advisor.” With that, working at a bank carries a certain level of cachet, as opposed to somebody who has the educational and institutional knowledge of actually providing investment advice.
I know all of the people on the bank side, and I don't want to pick on the banks, because as a politician I'm very much called a company man from time to time and I drink the Kool-Aid just as everybody else does, but I want to say this. From a customer perspective, a very objective perspective, if you're walking into a bank and somebody at the tell is giving you investment advice...and the only point here is that they look at your financial profile on their screen and say, “You should speak to X, have you ever thought of doing y?”
I humbly suggest it is not within their expertise to suggest that to a customer, because they don't know that customer's financial profile to that extent, and they shouldn't be making that type of recommendation. That's one man's opinion.
I'll defer to the Chair and I think my time is up.
Presumably, you're selling a product or upselling a product that somebody may want. Anyway, I get very tired of Liberals trying to save the world. But we'll go on.
I'd like to ask each one of you whether—
Some hon. members: [Inaudible--Editor]
Mr. Ron Liepert: Well, you're even worse.
Voices: Oh, oh!
I'd like to ask each one of you—and maybe you can't answer this question—on an annual basis, how many employees would you dismiss for doing something that would cross the line? Maybe it's fraudulent, maybe it's totally inappropriate, maybe it's consistently trying to sell something that nobody wants. Would it be fewer than five? Would it be five to 10? Would it be 10 to 50? Give me an idea on average, annually, how many employees you have discovered crossing the line.
Thank you very much for being here with us today.
I thank all of you very much for your testimony. My questions are addressed to all of you, and are going to be a bit different from the ones I put to the other group of witnesses.
The trust Canadians place in the Canadian banking system was shaken by articles and reports that came out in the month of March.
In a brief submitted to the committee, an Ottawa lawyer, Harold Geller, said this: “The fact that, historically, regulatory organizations have counted on financial institutions to monitor themselves has undermined the confidence of Canadians in the financial system [...]”
In light of the reports of the past few months, and of those that continue to be broadcasted, as well as the testimony we have heard at this committee, what should be the role of the FCAC, or your role as a financial institution? What other type of commitment could you make to restore Canadians' confidence in the Canadian banking system?