The Federation of Canadian Independent Deposit Brokers Position Papers- June 26, 2002 Response of the Task Force on the Future of Canada's Financial Services Sector Print Close

Presentation made to:   
House of Commons, Standing Committee on Finance - October 20, 1998 
Senate of Canada, Standing Senate Committee on Banking, 
Trade and Commerce - October 29, 1998 

Ladies and Gentlemen, 

I would like to begin by thanking the Mackay Task Force for the time and energy that was spent in preparing it's comprehensive report.  I would further like to thank you for giving the Federation of Canadian Independent Deposit Brokers the opportunity to comment on, and possibly add to, the report. 

The Federation of Canadian Independent Deposit Brokers 
The Federation of Canadian Independent Deposit Brokers is comprised of entrepreneurs that recognized consumers needs in the late nineteen seventies and early nineteen eighties. 
We became known as Deposit Brokers.  We primarily shopped the interest rate market and identified the financial institutions with the best rates.  As the years went by, we expanded to offer insurance products and mutual funds.  Today some of us are full- fledged financial planners and stockbrokers who are registered with the Investment Dealers Association. 

As independent financial intermediaries our role has been to find the best product, and the best pricing and services available to the consumer in the market place.  In brief, Deposit Brokers provide deposits on a cost-effective basis to financial institutions and, provide Canadian consumers complete financial products regardless of where they live. 
We presently have in excess of thirteen billion dollars under our umbrella. 

Concerns of the Federation 
The Federation of Canadian Independent Deposit Brokers has been very conscious of limiting our investors’ to the sixty thousand dollar Canada Deposit Insurance Corporation (CDIC) protection limit with each financial institution.  We have become very distressed and apprehensive.  Our distress and apprehension stems from two areas. 

One, with the upcoming baby boomers’ inheritances, the average consumer's liquid wealth has been growing by leaps and bounds.  These dollars have been accumulated through sweat and toil over several generations.  In the past, we were able to distribute these funds evenly with a number of financial institutions and thereby ensure the protection of the CDIC.  This is no longer the case.  With the demise of many of our trust companies and with the amalgamations of others with the banks, the average consumer is placing more and more of his or her funds with fewer institutions - mainly the banks. 

Two, as you are aware, the investment strategies of these institutions have changed dramatically over the last few years.  Earnings are no longer predominantly generated from the spreads between interest being paid on dollars taken in, and dollars being loaned out.  Investment managers have been hired with the exclusive responsibility of generating above average returns on the capital within these financial institutions.  Vehicles of investment which would have been considered taboo only a few years ago have become everyday transactions.  Some major investment houses have fallen victim to the irresponsibility of their money managers who have used derivatives, options and futures to enhance performance.  As pressure mounts to continue to outperform the previous year's results the consumer stands to lose a lifetime of savings. 

The view of the Federation is that any consideration of mergers between institutions should address the twin issues of the safety of consumer deposits and of maintaining a competitive market place for such deposits. 

Safety of Consumer Deposits 
Merged institutions that do not maintain an equal number of CDIC insured entities after their mergers, as existed before their mergers will reduce the available alternatives for insured deposits.  Consumers may subsequently find that a portion of their savings will become uninsured within a merged institution.  They will then have to decide whether to accept that risk or whether to transfer the uninsured excess to another institution where they have not reached their maximum deposit limit - provided that such an alternative exists.  Conversely, if the number of CDIC insured entities remains the same post merger as existed pre-merger the merged institution may have a disproportionate share of the market increasing its competitive advantage. 

Based on the forgoing, it is the suggestion of the Federation that consideration be given to increasing the CDIC limit not only to protect existing deposits of a merged institution but also to improve market competition with the non-merged institutions, which would ultimately be able to accommodate more deposits.  The Federation believes that an increase in CDIC limits would lessen the inconsistencies that exist in the market place between federal and provincial financial institutions.  As you are probably aware, the Provinces of Ontario and Alberta both provide unlimited coverage of consumer deposits in their savings and treasury branches which essentially offer the same services as do the banks and trusts companies. 

It is with this in mind, that the Federation of Canadian Independent Deposit Brokers seriously recommends that the limit of CDIC protection be raised to ‘unlimited’ coverage, or at the very least, to one hundred and fifty thousand dollars for registered funds and one hundred and fifty thousand dollars for non-registered funds, for each individual account, at each of the financial institutions. 

Protection from Tied-Selling 
Tied selling is another concern of the consumer that has been brought to our members’ attention on numerous occasions.  Branch managers of various financial institutions have been reported to offer capital business loans and lines of credit conditional on RRSP funds being transferred to their branch.  In addition, it is not uncommon for a consumer to be told that his or her loans must be covered by life insurance - insurance that must be purchased through the financial institution offering the loan. 

We are delighted to see the progressive stance of the House Finance Committee in amending the Bank Act to prohibit tied selling.  However, the Federation recommends that the definition on tied selling be more clearly defined.  We draw your attention to section 459.J of the Bank Act, “restriction on tied selling” sub-section (5) Regulations - which states that “The Governor in Council may make regulations specifying the type of conduct and transactions that shall be considered undue pressure or coercion...” 
We would like to see more meaningful definitions.  We also encourage the task force to provide a mechanism for the consumer to remedy and address these concerns independently of the financial institutions. 

Confidentiality and Consumer Privacy 
Confidentiality is a right that every consumer deserves.  Nevertheless, time after time financial institutions have taken advantage of information received directly.  A particular case in point was a trust company that has used deposit brokers as intermediaries to have their clients invest in this trust company's guaranteed investment certificates.  As required by the Federation, direct deposit accounts are set up in order to deposit cheques directly to that trust company's bank account.  The bank where the direct deposit account was set up photocopied these clients personal cheques which provided them with residential addresses and often phone numbers.  The bank proceeded to call the clients and offer their GIC products directly.  This is a serious crossover of boundaries and of confidentiality. 

The Canadian Bankers Association Privacy Model Code is a model which is intended to help Canada's chartered banks to develop, adapt and to implement its own privacy code specific to their institution.  We are extremely concerned whether the privacy code is being adhered to in the strict sense of the word.  In this regard, the Federation has two recommendations.  First, to make sure that the Privacy Model Code is being adopted and practiced by each bank in addition to allocating an agency to monitor compliance of these codes.  Second, that a privacy code be introduced in which all financial institutions must comply. 

Sensible Mergers and Moral Responsibility 
Heading into the new millennium we hope will bring with it a new corporate responsibility.  The bottom line will continue to remain important.  However, equally important is the security of the employee who helped contribute to that corporation's profitability.  The merging of behemoths for the sake of “bigger is better” is not good enough reason for thousands of individuals to face unemployment.  For example, it has come to our attention that corporations use the tactics of offering job relocation positions at the other end of the globe to encourage employees to accept early retirement.  These corporations are extremely competitive in the international sphere and continue to produce profits in the hundreds of millions and even billions, the Federation of Canadian Independent Deposit Brokers believes this to be morally wrong and without conscience. 

Hopefully each of you here today will help to implement the necessary measures to ensure the: 
1) Safety of Consumer Deposits 
2) Protection from Tied-Selling 
3) Confidentiality and Consumer Privacy 
4) Sensible Mergers and Moral Responsibility 

Thank you very much.