What is Coercive Tied Selling?
Posted 09 Nov 2016 by Melissa Allan
There is a fine line between trying to earn a client’s business to provide value added services and imposing undue pressure on them to do so. The financial planning industry, including the sale of investments and insurance, is full of compliance and regulations for us as advisors. Not only must we justify trades and investments but the promotions and marketing we employ are held to a certain standard.
The Financial Consumer Agency of Canada (FCAC) supervises federally regulated financial institutions to ensure these institutions are compliant with its rules. One particular area of focus of the FCAC has been coercive tied selling.
A common example of this is renewing your mortgage at the bank. We have heard stories of mortgage brokers offering our clients better rates if they “consolidate their business and transfer investments over.” The bank classifies this as “preferential pricing.” However, the FCAC defines it as coercive tied selling IF they say the only way you can be approved is to move your investments over.Section 459.1 of the Bank Act1 prohibits banks from doing this.
All the major Canadian Banks’ websites we’ve checked (for example CIBC, RBC, TD) cite that coercive tied selling is illegal but reiterate that preferential pricing is ok. Preferential pricing means the more products you have with them, the better rates they may be able to offer you.
One of our clients informed us that they were told their bank branch wouldn’t be able to help them if they had questions if they “only had their mortgage with them.” They would be forced to call an 800 number on their statement and wait on hold unless they were a “loyal bank client.”
A better example of coercive tied selling would be when a business owner goes to a new bank for a loan. The bank cannot force them to have an account with them to qualify for such a loan, but they can give them a better rate for having all their accounts with them. Even in cases such as this, where the practice is legal, it can certainly make you feel uncomfortable, or at the very least pressured to make what feels like a rash decision.
If you find yourself in a situation where you are uncomfortable or coerced, ask to speak with a branch manager at the bank and express your concerns.
1 Restriction on Tied Selling. Government of Canada. http://laws-lois.justice.gc.ca/eng/acts/B-1.01/section-459.1.html