I have been dealing with my bank for decades and most of my financial products are held there. Yes, I know that I could get a higher interest rate on my savings account, or a lower trading fee on my discount brokerage if I switched. I think about it for a minute or two, and then move on to something else.
Most Canadians by and large do feel very comfortable with their financial institution and have a great degree of loyalty.
At the bank that I was employed with for many years, we worked hard to achieve that loyalty. Our mandate was to sell as many products as possible to each customer. We arranged direct deposits and automatic debits to make banking easy. The theory here is that the more products you have, the less likely you will be to move on to somewhere else.
A common misconception is that you will receive the best rates and multiple perks if all your banking is at one place, but that is not necessarily true. The bank interprets your loyalty as making you less price sensitive. While I did have some leeway in negotiating, we did have rock bottom pricing policies that did not always match the competition.
The assumption was that our customer service was so fantastic, why would anyone want to leave? And, you know what, I must have been fantastic, because very few people did.
Me: “I’m sorry, I can’t match the rate you were offered by ABC bank. The best I can do is “x” percent. But, I can give you three months of free chequing.”
Customer: “Okay, that sounds great.”
Why are we so loyal to our bank?
We have a cognitive bias about choice. When we choose something, we tend to feel positive about it, even if that choice has flaws.
We believe it will be too complicated and take a lot of time and effort (perceived pain) to switch.
Investors stick with their advisors – and may not mind paying extra fees – because it adds a level of comfort. It can be intimidating to research other options, or even strike out on our own with an on-line brokerage.
A CIBC survey showed Canadian investors are often fearful about adjusting their general investment approach and continue to invest with who and what they know best.
Will this change in the future?
According to a survey by Yahoo Finance:
- 19% of Canadians switched banking providers/advisors in the last 5 years.
- Millennials are more likely to switch – 29% – with many moving to on-line providers.
- New Canadians have the least loyalty, with 39% making the switch.
Those are not high percentages yet, but the time is coming when the big financial institutions will have to stop being so complacent and start making the changes that their customers are beginning to want.
While Canadians have traditionally been loyal when it come to financial services – sticking with a bank or advisor for years regardless of the quality of service – younger generations are becoming more demanding and price conscious. They don’t have the same allegiance shown by their parents and grandparents.
There is something off-putting about change – whether it’s your bank, investment advisor, service provider, or even your doctor and dentist.
Good service and advice is always invaluable, even if you have to pay a little extra for it. But, there may be better options available out there for you.
In fact, I’m going to take my own advice and check out some alternatives. Although, I’m kind of busy right now. Maybe I’ll wait until the New Year…