The Wells Fargo scandal has turned heads among consumers about the inner workings of sales incentives in the financial industry.
Even the most cynical Wall Street observers have been surprised at the sheer magnitude of number of people involved. Here’s the cliffs-notes version:
Wells Fargo fired 5,300 employees over several years for opening unauthorized accounts for customers.
Wells Fargo flagged over 2 million accounts and credit cards that may have not been authorized. Let that number sink in: 2 million.
The employees were motivated due to bonus incentives and pushing of “cross-selling” by upper management.
The person who oversaw the operation left the bank with a $124 million payday.
Alright, I’m not one to pick on executive compensation all that often but when the worker bees get axed and executives get rich, it ruffles my feathers.
You would be naive to think that this only happens at Wells Fargo or only in the retail banking division. They were just the big fish that got caught. The same infrastructure and incentives that led to this are rampant in the “wealth management” or “financial advisory” side of big banks and brokerages as well.
Brokers (who may even call themselves “financial planners”) increasingly operate in the same world of cross-selling and bonus incentives. There are targets for acquiring new client assets to manage, life insurance sales, and even opening new credit cards. To think that a potential bonus of thousands or even tens of thousands of dollars for selling just one more annuity before the end of the quarter doesn’t affect the way you interact with clients would be to deny human nature.
Some things only make sense when kept secret. Compensation in much of the financial services industry is one of those things. It could never stand to see the light of day. If customers truly understood how it works, they wouldn’t stand for it.
I truly hope the Wells Fargo scandals causes financial executives to reconsider what types of incentives they are creating for their employees. But if my time in this industry has taught me anything, it’s “don’t hold your breath.”