What Did TD Bank Do Wrong?

Over the course of the past week, a spotlight has been firmly fixed on the sales practices of Toronto-Dominion Bank (TD). A number of employees came forward to suggest business practices are not all on the level.

In this article I intend to provide my assessment of the facts from the CBC article published March 6.

In Their Own Words

I did not find any actual wrongdoing from TD. Rather, when examining the actual quotes from the disgruntled employees, one gets the sense that these individuals were acting entirely on their own.

Consider the following three quotes:

• “When I come into work, I have to put my ethics aside and not do what’s right for the customer.”
• “You don’t know what it’s like to go to bed at night, knowing your job is now to set people up for financial failure.”
• “Customers are prey to me… I will do anything I can to make my [sales] goal.”

TD operates in financial services which is a hotly contested, competitive sales environment. Putting ethics aside is never a viable option.

Further, there is no valid reason to believe TD would want its employees to disregard the needs of clientele.

Quite the opposite, actually. The true responsibility of a bank employee is to provide financial services that meet the needs of customers. It is imperative to be proactive and recognize opportunities.

The fact of the matter is that the vast majority of consumers have a very poor understanding of the financial products out there. Consequently, these same consumers rely heavily on professionals to be knowledgeable and provide proper advice.

Front-Line Advisers

Within the article it is noted that the role commonly recognized as a “bank teller” has been renamed “front-line adviser”. While the employees depict this as a negative change, I fail to see the deception in this. Bank tellers–by any name–are the first line of contact for most customers. The role is, first and foremost, to satisfy the need of the customer. This may involve cashing a cheque, accepting a deposit, or any other number of basic banking functions.

Bank tellers offer a vital service. They offer value-added services such as overdraft protection and credit cards. They also make referrals to other staff members who may have greater experience or qualifications. All of this is designed to offer consumers the product offerings they need.

Personalized Advice is Critical

The cynicism of the following quote speaks volumes, “We’re now called front-line advisers… [T]hat would be funny, if it wasn’t so sad.” In an industry where much of the service is being automated, it is intelligent to leverage front-line employees. As the volume of these face-to-face interactions decrease, the importance of making each one count increases.

As part of the case presented against TD, it is stated that the teller screens highlight sales prospects such as auto loans and lines of credits for which the customer may qualify. This is quite clearly an actual benefit from TD. Providing real-time, actionable data and deals to their tellers helps meet client needs. This is simply smart business.

Upselling is Expected

When I order at a drive-thru, I expect to be offered additional products. Most consumers expect to be given the chance to upsize or pick up additional goods at a deal.

What can also be expected is an honest salesperson. For this reason, I find the following quote exceptionally troubling: “There are elderly customers who have fought for us – they have an army pension… [A]nd here I am, setting them up with all these service fees and they don’t have a clue what’s going on.” Whoever stated this should be investigated personally.

Not only is it unethical at the most extreme level to do what this individual admits to having done, I am confident it violates the law. Customers must be given full disclosure when signing up for financial services. From what I can tell of this statement, the employee has engaged in this practice entirely on his or her own. As with previous quotes from the article, there is no actual connection between the employee’s decision and TD itself.

Profitable Banks Are a Good Thing

The media loves calling out banks for their high profits. This is often touted as evidence of wrongdoing.

It begs the question though: What is wrong with notching record earnings? It is those same high-quality earnings that allow for the healthy Tier I capital reserves that the Canadian banks now enjoy. These are precisely the reserves that might be needed during the next downturn.

I have to say that as a Canadian I am thankful to be blessed to live in a country with a strong financial sector. During the financial crisis, I never worried about access to capital.

Despite the carnage all around, I was unconcerned about the solvency of the institutions I entrusted to hold my life savings. I never did and do not now take that for granted.

Why This TD News Struck a Chord For Me

There is no question that banks have, at times, engaged in questionable business practices. By and large, the industry has in many ways earned its reputation for earning ransom-sized profits. However, I did work at one of the Big Five Banks quite a few years back. As such, I know it is possible to do what is right for consumers while also earning well.

Put the Customer First

Putting myself in the shoes of consumers actually made me better at my job.. Throughout all interactions I consistently tried to find ways that I could make their life easier.

Sometimes that meant opening a new account that could offer value. Sometimes, it meant closing an old one that no longer made sense.

Regardless, I always built trust by treating each customer as a friend. I also acted as though I were speaking to a family member.

With respect to TD’s business practices, there are rules and regulations in place that I believe all companies must abide by. Not just the letter of the law, but the spirit as well must be respected. I believe we are crossing a line, though, when we tell a company how to manage employees and whether it is okay to look to organically increase its profits.

From what I can tell of the article in question, TD did not transgress any boundaries. As much as a company should have the ability to increase sales targets, employees similarly have a choice to make as to whether they would like to work in a sales-driven industry or not.

Conclusion

When a company breaks the law or leads employees to do so, it is desirable for them to be punished both to penalize them and to deter others from doing the same thing. Based on my analysis of the situation with TD, however, I am unable to connect the dots between employees not enjoying the sales environment of their employment and actual corporate wrongdoing. In my dealings with TD over the years, I have been pleased by the level of customer service and professionalism overall. What disappoints me about all of this is that all employees now stand to be painted with a negative brush.

With that said, I would like to be clear that my goal here was never to downgrade or patronize the concerns the employees brought forth. My intention has been to offer a balanced counter to the onslaught that TD has faced in the wake of this news coming out. Should additional details come to light which substantiate actual wrongdoing, I will certainly not shy away from re-evaluating my stance.

I am currently a shareholder of three of the Big Five Banks. I have held my TD position since the first-half of 2009 and near the market lows.

Thank you for reading.

– Ryan

What are your thoughts on the recent news with TD?

Full Disclosure: Long TD