Canadian millionaires are increasingly turning to low-cost financial services providers like ING Direct and President's Choice Financial because they believe most Canadian banks charge too much and typically offer inferior customer service, according to a new survey.

The results suggest Canadian millionaires are willing to try alternatives to the dominant Big Six banks, giving new entrants an opportunity to gain market share among an attractive segment of financial services clients, according to research by The Taddingstone Consulting Group in Toronto.
The annual survey, which gauges millionaires' opinions on all aspects of Canadian financial services from banking to brokerage, found that 13% of millionaires were clients of ING Direct in 2003, up from 10% in 2002 and 5% in 2001. ING Direct is the operating name for ING Bank of Canada.

The results appear to validate ING's business plan, which centres around broadening its appeal beyond its flagship investment savings account to mutual funds, mortgages and other products, while it keeping its costs low.

ING does not have any full-service branches, but customers can bank online or over the phone.

Now that ING has built up its customer base and profitability in Canada, it has steadily increased its spending on marketing to bring more attention to its offerings beyond the high-interest savings account.

In response, several of the big banks have simplified their accounts, lowered fees,and sweetened rates, but new players like ING still appear to be gaining ground.

"The fact of the matter is that ING has managed to penetrate the millionaire community effectively with a very focused offer at an attractive price," said consultant Keith Sjogren of Taddingstone.

"The millionaires like ING not only for price, but also because it works efficiently and the error rate is negligible." Mr. Sjogren added that credit unions also usually score higher in customer service than the banks.

According to the survey, slightly more than half of the 140 respondents interviewed by Taddingstone were impressed with their banks. About 70% criticized the turnover among relationship managers at the banks and lack of regular contact with bank personnel. In other words, millionaires don't think they're getting enough special attention.

In addition, about 40% of millionaires felt they are paying too much for banking services furnished by the Big Six, creating an opportunity for alternative providers like ING, part of Amsterdam-based ING Groep NV, and PC Financial, a partnership between Loblaw Cos. Ltd. and Canadian Imperial Bank of Commerce.

The survey's respondents were predominantly male, with an average age of 61 and net worth of $3.2-million, Taddingstone said.
Clients of the big banks typically have accounts at two or more banks, Taddingstone added, so millionaires aren't beholden to one financial services provider. Only 27% of millionaires have all their business with a single financial institution.

In contrast to the banks, three of four millionaires with ING accounts were satisfied or very satisfied with ING's service.

"Given the praise for ING it will find high acceptance rates for new products," Mr. Sjogren said.
Despite ING's apparent popularity with the rich, the bank is not specifically targeting the wealthy. ING is hoping to appeal to a wide range of Canadians. Offering special perks to the wealthy could increase ING's costs.

ING's Canadian unit earned more than $66-million in 2003, according to regulatory filings, compared to $30-million in 2002 and $5.3-million in 2001. ING has about 850,000 clients in Canada.

President's Choice Financial currently has nearly 1.4 million customers, compared to 1.3-million at the end of CIBC's fiscal 2003 and 1 million in 2002.

Amicus Bank, the CIBC division that provides the banking services for PCF, lost about $22-million in 2003 and more than $64.4-million in 2002. President's Choice Bank, which offers a credit card, earned $11.4-million in 2003, compared to $2.9-million in 2002.