Becky Grimes had trouble enough hitting sales targets as the manager of a busy branch of Wells Fargo in Austin, Texas. But when she moved to run a Wells branch in a much smaller farming town about two hours to the south in 2011, the same targets — 8.5 products per day, per banker — became too much to bear.
It was the sign of an aggressive and pervasive cross-selling culture that forced her into early retirement in 2013, she says — and which has come back to bite Wells, the bank at the centre of a bogus account scandal.
Ms Grimes had four conference calls every day — at 9am, 11am, 2pm and 5pm — during which she was grilled by a district manager on the sales her team had generated. Staff would come to her in the interim, saying they had done a full profiling exercise on a particular customer, but she would have to turn them back to sell more.
“It was pretty ridiculous,” she says. “It bordered on harassment, quite honestly.”
Wells has blamed rogue employees for opening up as many as 2m unauthorised accounts to meet sales goals. To contain the damage stemming from its record $185m fine from regulators, the bank has pledged to scrap all product sales goals for its retail banking staff, including those in branches and call centres, beginning on Saturday.
But analysts and consultants say that many other banks around the country will have to review their own sales practices if they want to avoid regulatory scrutiny.
Morgan Stanley this week became the latest bank to come under the spotlight over allegedly high-pressure tactics.
William Galvin, a Massachusetts securities regulator, accused Morgan Stanley Smith Barney — the New York-based bank’s retail brokerage — of running an “unethical sales contest to cross-sell banking business to brokerage customers”.
He said the bank had been pushing financial advisers to sell securities-based loans, which allow investors to borrow against the value of their investment accounts using the assets held in them as collateral.
Advisers were offered incentives running into thousands of dollars, which they spent on client entertainment including tickets for Boston Celtics basketball games. Authorities contended that the practices created conflicts of interest.
Morgan Stanley said it objected strongly to the allegations. “The securities-based loan accounts were opened only after discussing the product with each client and obtaining their affirmative consent,” the bank said in a statement. “The complaint is without merit, and Morgan Stanley intends to defend itself vigorously.”
During Thursday’s grilling of John Stumpf, Wells Fargo’s chief executive, on Capitol Hill at least two lawmakers called for additional hearings to examine whether cross-selling activities have led to consumer harm by other banks. The previous week, Comptroller of the Currency Thomas Curry told Congress that he had instructed staff to carry out a “horizontal review” of sales practices at the biggest banks.
Meantime, all banks will have to avoid the slightest appearance of coercion. Lenders will have to “practise good hygiene” if they are selling anything beyond a “logical bundle” such as a checking account, debit account and savings account, says Bob Hedges, global head of the financial services practice at AT Kearney, the consulting group.
The crackdown comes as margins in the retail arms of the big US banks are already under heavy pressure, weighed down by ultra-low interest rates and sluggish demand for credit. The scandal could mean that banks have to surrender some incremental revenues, says Brian Kleinhanzl of Keefe, Bruyette & Woods, further squeezing their bottom lines.
There is nothing wrong with cross-selling, in itself. It was one of the driving forces behind Wells’ acquisition of Wachovia just after the collapse of Lehman Brothers. Wachovia’s retail arm had a reputation for very high customer satisfaction, so board members saw an opportunity in grafting that culture on to Wells’ sales machine.
“We’d look to have an hour’s conversation with each customer, with the goal of understanding their total needs,” says one former board member. “That way we could provide more solutions and products, as opposed to rifle-shooting a different product.”
As Wells’ cross-selling ratio steadily ticked up, helping the bank supplant JPMorgan Chase as the world’s biggest by market capitalisation, other banks took notice. Jason Goldberg, an analyst at Barclays in New York, notes that the average consumer has 14 financial products — but just three of them with their main bank. “To the extent you have a good product at a good price, it behoves you to sell it to your customer,” he says.
But Wells’ insistence on making explicit links between performance and sales goals made the bank vulnerable to regulatory action. Staff were expected to stay late to make up daily targets, says Ms Grimes, or come up with a plan for the next day if they failed to do so.
Wells says it sacked 5,300 staff over a period of more than five years for a range of illegal or unethical practices. But if they had not been put in a position where they felt their job was in danger, they would not have done what they did, says Rasheeda Kamar, a former branch manager in New Milford, New Jersey.
In December 2010, when her branch was at 99 per cent of its sales goals for the year, she was given 30 days to hit 100 per cent, as part of a nationwide push called “Jump into January”. But at the same time she had to handle the integration of Wachovia, meaning that she missed the target — and was threatened with dismissal.
She describes bankers cross-selling extra checking accounts for holiday savings and fuel bills, “just so they didn’t get yelled at three times a day on the conference call”.
“When I saw John Stumpf blame bad employees, it struck a really, really raw nerve with me,” she says. “How dare he?”
Additional reporting by Alistair Gray