Sunday, April 22, 2018
Business

Regulators investigate Wells Fargo Bank's high-pressure sales culture

Federal bank regulators are investigating whether Wells Fargo Bank, the California giant that is one of the biggest institutions operating in Florida, is going too far in pushing employees to sell banking services to customers.

The Office of the Comptroller of the Currency, part of the U.S. Treasury Department that oversees nationally chartered banks, and the San Francisco Federal Reserve Bank are "probing" the bank's sales culture, the Wall Street Journal reported Monday.

"The investigation represents a potential black eye for Wells Fargo, which has escaped the large settlements paid by other U.S. banks after the financial crisis and is generally considered one of the industry's best-run companies," the Journal reports. Wells Fargo is the largest bank in the country based on its market value.

Overzealous sales cultures in banks are not new. Florida-based Barnett Banks, eager to boost profits, was caught in the 1990s trying to push its customers to buy the bank's own family of mutual funds, even though the performance of those funds was in many cases inferior to funds of other firms the bank offered but did not pitch to customers. Barnett was later purchased by what is now Bank of America.

The origins of customer complaints of Wells Fargo employees using high-pressure sales tactics include Florida and other major states, though the greatest publicity so far seems to come from the site of Wells Fargo's headquarters: California. Banks use the concept of "cross selling" internally to compensate and press employees to market additional services to existing customers beyond traditional checking or savings accounts. For example, the bank might "sell" a customer who carries large balances in checking to open a Wells Fargo brokerage account to invest in stocks or bonds, thus generating commissions for the banking company. Or it may urge older customers to take on additional insurance products to help "protect" them in their golden years.

The idea is to deepen the banking ties to each customer while also boosting profits. The issue now is whether Wells Fargo is stepping over the line, both by selling products to customers that may not be in their best interests or they clearly don't need, and by pressuring their employees to meet unrealistic sales quotas.

Wells is one of the few big banks to specify in regulatory reports how many products it cross-sells to its customers. The latest SEC filings show Wells averages selling 6.13 banking services per retail customer household, up from just three in 1999. Its current goal, however, is to average eight products per customer. For wealthier clients, Wells reported an average of 10.52 products in its brokerage and retirement units.

The regulatory probe appears prompted in part by a lawsuit brought against Wells Fargo by the city of Los Angeles claiming the bank's high-pressure tactics pushed its employees to commit fraud to meet sales quotas.

The bank states it operates with only the best interests of its customers in mind and will defend itself against the lawsuit. Details of the suit have appeared in recent coverage by the Los Angeles Times.

The newspaper reported on Wells' pushy sales culture as far back as 2013. Those stories described how Wells Fargo employees would beg friends and family members to open ghost accounts. "The employees said they also open accounts they knew customers didn't want, forged signatures on account paperwork and falsified phone numbers of angry customers so they couldn't be reached for customer satisfaction surveys," the Los Angeles Times reported.

Michael Moebs, who heads a prominent banking research firm called Moebs Services, told the Times that Wells faced a "fundamental reputational problem," adding that "you don't want this happening."

Will Wells tone down its atmosphere of boiler room sales tactics? Or will regulators do that for the bank? Or might Wells simply stop disclosing the type of sales data that helped get it in trouble in the first place?

What we don't know is how many other banks, intent on boosting the bottom line, are following in Wells Fargo's aggressive footsteps.

Contact Robert Trigaux at [email protected] Follow @venturetampabay.

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