Tag Archives: GICs

When Commissions Clash With Customer Service at Banks and Financial Institutions

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Overheard at the Bank Branch: “I Don’t Handle GICs.”

Yesterday, while waiting at the bank branch I overheard a conversation between two staff. Frankly the one Advisor was so loud the entire branch had to hear him whether they wanted to or not. Anyway, what caught my ear was he was basically refusing to see a client as requested by the Receptionist because “I don’t handle GICs. I don’t believe in them. I can’t get behind them.”

After feeling a bit sorry for the Receptionist, who wasn’t asking his religion but was just asking if he was available to meet with a customer, I wondered why he was pontificating so loudly. A peek as I passed his door later confirmed he had an audience. A new hire was being trained. So likely he was bragging and trying to score himself some points.

He lost big points with me. Which is too bad for him because we actually have quite a lot of money to invest and could have involved him if we’d wanted to. He may have also lost a few other customers who heard him dissing a Receptionist to make himself sound more important.

Why Would a Bank Advisor Not Want to Handle GICs?

The answer to those of us who are cynical is painfully obvious. There is no direct financial benefit to an Advisor for selling a GIC to a bank customer. The bank makes money on GICs. And some financial institutions and brokers make money on selling GICs offered by other financial institutions because there is a referral commission. However, for an Advisor at a bank branch there is (usually) no direct personal compensation for selling a GIC from that bank.

What Does the Bank Advisor Want to Sell to Customers?

There is, however, a big personal incentive for selling a mutual fund. Bank advisors earn personal commissions for selling mutual funds. The commission is part of the “trailer fee” paid by the mutual fund each year. Many bank advisors earn part of the trailing commission on a mutual fund for as long as the customer owns the fund. They even make the commission if the fund loses money, which is more than the customer does.

Lack of Fiduciary Interest and Bad Customer Service Combined

The problem with this difference in compensation is that the Advisor now is in a position where he or she makes more personal income if he or she recommends one product instead of another. This means that they may be tempted to recommend a product not because it is the best fit for the customer but because it is the most lucrative for them.

This is a horrible situation. It gets worse when the customer genuinely needs financial advice.

Case Scenarios for Guaranteed Income Certificates (GICs)

Saving for a Short Term Goal with No Income and No Way to Regain a Loss

Imagine an elderly person comes into the bank wishing to invest $5000 for one year. She just inherited the money from her sister. They need all of it next year (14 months from now) to pay for an electric scooter and a ramp into their home that they have been saving diligently to buy. Her husband is getting his hip replaced in three years but the doctors have warned them he will be wheelchair bound soon and for months after the surgery.

This person wants her money to be completely safe. She needs it. She just wants to earn a few dollars more than if she left it in her chequing account which pays no interest at all. She has banked here for forty years and has no personal computer, nor the interest or aptitude to get one.

What do you think she should invest her $5000 in?

There really aren’t many options that suit her needs. The obvious one is a GIC. It won’t make much interest, but even 1.7% is better than nothing. (If you don’t think $85 is important, you are not old, infirm and living on a very small income. Many people are.)

With the high probability of interest rate hikes, a bond fund could lose money in the short term. A money market fund probably pays less right now than a GIC and it carries a (small) risk of loss.

What do you think this Advisor is going to recommend she invest the money in?

Saving for Education Which Starts Next Year

Here’s another possible scenario. A person walks in with $5000 to contribute to their only child’s RESP. The child is starting his last year of high school in the fall and plans to start university in just over one year. Although the parents contributed $100 a year to the RESP each year till now, they have never had a chance to save more. They just got a bonus from work and decided to put it in the RESP to get the 20% matching CESG ($1000!) for their child.

Should this person’s money be invested in equities? Probably not. This family is looking for the 20% grant, not for a potentially huge capital gain. And a mutual fund with a high MER isn’t a great choice for them either.

A GIC may be boring and very low paying but it’s easily understood, easily managed, and safe. A bank advisor should be at least presenting it as a sound choice to the client.

Further Reading

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What do you think of a bank Advisor that won’t talk about GICs when clients ask for investment advice? Do you think the compensation structure for Advisors needs to be changed so they receive the same amount no matter which product the client purchases? Please share your opinions with a comment.

Pros and Cons of Buying GICs in a Self-Directed Online Brokerage Account

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When we opened a self-directed online brokerage account, I wanted to check if we should use it to invest in GICs. (GICs are guaranteed investment certificates.) I wanted to know what the pros and cons were of buying GICs this way. And I wanted to understand why the banks would offer this service seemingly for free. In short, I wanted to understand the pros and cons of buying GICs in a brokerage account.

Written: 2012
Reviewed: 2023
Revised: 2023

I admit we have a large amount of our RRSP savings in GICs. It’s what I need to sleep peacefully.

What Do BMO InvestorLine and CIBC Investor’s Edge Offer for Sale for GICs?

In registered self-directed InvestorLine accounts and Investor’s Edge accounts in 2023, the minimum purchase size for a RRSP GIC is $5000. After that, it goes up by increments of $1. So you can buy a $5000 GIC, a $5001 GIC or a $5123 GIC, your choice.

This $5000 starting point is a bit of a nuisance if you have dividends coming in that you want to re-invest in a GIC. However, if you stagger your GIC maturity dates widely enough, you could always add to an existing GIC after it matures and before you re-invest it.

The GICs listed for sale are offered by a wide variety of bank, credit union, trust company and other financial institutions. For further information, also see the article: Comparing GIC Interest Rates for BMO InvestorLine and CIBC Investor’s Edge Accounts.

Pros of Buying GICs within a Self-Directed Online Brokerage Account

  • BMO InvestorLine and CIBC Investor’s Edge sell GICs from trust companies which offer higher rates than many Canadian banks.
  • When they mature, the principal and interest for the GICs are paid back into your InvestorLine or Investor’s Edge account in cash.
  • You can invest with a variety of financial institutions without having to set up separate RRSP or TFSA accounts with each of the institutions. Instead, you manage everything through your one self-directed RRSP account and your one self-directed TFSA account.

Cons of Buying GICs within a Self-Directed Online Brokerage Account

  • In 2023, the minimum investment is $5000 for BMO InvestorLine and CIBC Investor’s Edge. (Always check minimums before purchasing, as the banks can change them without notice.) If you buy GICs directly from financial institutions, the minimum required investment is usually much lower than this.
  • They do not offer GICs from every financial institution in Canada.So you cannot buy a Tangerine GIC through InvestorLine. They usually offer GICs from about 20 institutions though, and the list of places changes from time to time.
  • For BMO and CIBC, the GICs cash out back into your account at the end of their term. Wasn’t this a Pro? Well, yes, but the possible drawback is that you have to keep an eye on your maturity dates and remember to re-invest them..
  • You have to buy a GIC by the daily cutoff time to ensure you get the rate posted at the time of purchase. At the time this was written, the cutoff time for BMO InvestorLine purchases was 3:45 p.m. “except on early closing days.” This deadline is not emphasized. You have to remember it.The cutoff time for CIBC Investor’s Edge is 4 p.m. but they state that if they cannot complete the order by day’s end they will cancel it and you will have to start again on the next trading day. You can’t apply to buy the GICs in the evening or on weekends.
  • You cannot cancel a GIC purchase order once placed. This is annoying if the rate increases during the day, after you placed your order but before your order is filled at the start of the next business day.To be fair, this is also the way equity purchases work. You can’t cancel your purchase order of Bell stock just because it’s now $1.50 less a share than when you bought it 10 minutes ago!

Disclaimer
All fees and commissions, and minimum purchase requirements were accurate at the time of writing in 2023. Always check with a financial institution for policy changes before making any commitments or investments.

Related Reading

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Do you use a self-directed brokerage to manage your GICs? Do you prefer to keep your GICs independently with a financial institution? Please share your experiences with a comment.