Banks exist primarily to serve their shareholders. Bankers aren’t there to help us; they’re there to sell us products and make money for their shareholders.

Our lives are undeniably simpler because of banks. They keep our money secure and give us nearly 24/7 access to it. Additionally, they lend us money to finance housing, cars, or even a drink at a bar.

Can you imagine life without the services of a bank?

Without banks, employers would pay us in cash, which we’d have to stash under our mattresses. At the end of the month, we’d need to visit the utility companies in person to pay our bills. Life would be much harder without the services of a good banker. Bankers play a crucial role in maintaining the complex system that allows money to move seamlessly, and they deserve to be compensated for making our lives easier.

Given how vital banks are to our daily comfort, it’s easy to believe that they have our best interests at heart—that their primary goal is to provide assistance, advice, and guidance to improve our financial lives.

But that’s not the case. A banker’s priority is to the shareholders, not the customers. The main purpose of a bank is to grow, increase sales, and pay dividends to its shareholders.

Some banks have discovered that the best way to grow is by treating their clients with respect and providing satisfactory services in exchange for their loyalty and money. But others have taken a different route, using persuasion and manipulation to extract as much money as possible from their clients. A few have even committed fraud.

Case in Point: Wells Fargo

Wells Fargo, a U.S. bank, created 3.5 million fake accounts to charge unsuspecting clients for services they didn’t request. At the same time, the bank was misleading shareholders with inflated business growth figures.

But that’s an extreme case. More commonly, hundreds of banks across the United States and Canada gently nudge millions of clients into using products or services they don’t really need.

Examples of How Banks Exploit Their Clients

• During RRSP season, banks spend millions on advertisements. When a client comes in, a “financial adviser” (who is really a financial product salesperson) offers mutual funds with high expense fees. They rarely offer low-fee funds, even though many of these financial products may be inappropriate for the client.
• When you visit a teller for a routine transaction, they often pitch the latest credit card, claiming it’s better than the one they offered last year or even just a few months ago. These credit cards are designed to encourage spending and borrowing at high-interest rates.
• I’m frequently prompted to borrow money for a car, to renovate my house, or to buy investment products. Often, the best advice would be to pay off my debt, but since there’s no profit in that for the bank, they would never suggest it.
• I’m regularly urged to increase my credit card or line-of-credit limit.
• I’m prompted to buy insurance products and even sign papers confirming I refuse them.
• I’m encouraged to switch to a different checking account with higher service fees or a higher minimum balance.
• I’ve been sold checkbooks at more than a 100% markup compared to office supply stores.
• Sometimes, I find fees for services I never subscribed to or for services I never asked for.

I’m sure there are many other schemes bankers use to separate us from our money; these are just a few I’ve personally encountered.

Examples of Sales-Based Employee Compensation

Employee compensation varies from straight salaries to straight commissions and everything in between. Employees on salaries often get promoted based on the number of new accounts they open, increases in mortgage lending, or the issuance of more credit cards. If these metrics don’t improve, there’s no promotion. So even if the employee isn’t directly compensated with commissions, their future salary and career advancement depend on increased sales.

The Ideal Scenario

Banks should offer great service and be compensated for it. However, there are many uninformed consumers, and banks should not take advantage of their lack of knowledge.

Instead of offering a consumer an increased credit card limit, why not point out that the card is charging 18% to 22% interest, and that paying off the debt would be wiser?

How about offering low-cost index funds to investors? Yes, these products make less money for the bank, but the loyalty and goodwill generated by sound advice could be worth much more.

How about aligning employees’ compensation with client satisfaction, not just sales volume?

Conclusion

Bankers are salespeople, they are not advisers and this distinction should be clear. Some savvy consumers know this difference but the vast majority of consumers don’t know it.

As a consumer, be skeptical of all bank offerings and services. Do your research, and don’t fall for gimmicks, gifts, or unnecessary products. Banks invest in these campaigns because they know you, the consumer, will pay for it.

Funny video about banking services

Other personal finance blog posts

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• Index funds is the active manager’s worse nightmare
• Beyond RRSPs: Understanding RRIFs to Secure a Comfortable Retirement