Wells Fargo Corporation's (NYSE:WFC) John Stumpf reports to Congress today to get his goose cooked over revelations his firm opened millions of unauthorized credit card and deposit accounts. The grilling he's going to get is pure political theater - we already know Congress will rake him over the coals and it's safe to assume Stumpf will play his part by feigning remorse. (He would score serious points by demonstrating genuine remorse by publicly resigning.)
Beyond the theater, the grim reality is, as The Wall Street Journal recently reported, Wells Fargo is far from alone in its passion for cross-selling; it may even engage in the practice less than some of its peers. But while Congress will grill Stumpf (as they should) and perhaps reference colleagues in his industry (as they should), they should also be grilling… themselves.
Yes, the government is not an innocent bystander. With gazillions of problematic regulations, where are the regulations that really count? Where are the rules that limit financial institutions to extending credit only in proportion to a customer's creditworthiness?
Participants in this forum have reacted in general agreement and in large numbers to our discussions this week about the problems people face preparing for retirement when they are accustomed to living beyond their means. Living in the most marketed-to society in the world does not aid their efforts to achieve solvency.
Banks are contributing to this serious social problem. Despite the scandal, Wells Fargo has not yet edited its vision, values and strategy section on its corporate website, which still reads:
An outcome of offering customers the products and services they need, want, and value is that we earn more opportunities to serve customers, or what we call cross-sell. Cross-sell is the result of serving our customers extraordinarily well, understanding their financial needs and goals over their lifetimes, and ensuring we innovate our products, services, and channels so that we earn more of their business and help them succeed financially. We succeed when our customers succeed."
Sounds a little nicer than "eight is great," but anyone who's been into a bank knows the drill. You've got your car at a parking meter, or have to run to pick up the kids at school, or whatever, but you know the teller's very job depends on trying to cross-sell you financial services.
I see you don't have a regular bank account with us," her computer prompts her to say.
Correct. I'm just here to pay my mortgage," you try to say politely.
Beyond the dread of an unwanted sales experience is the reality that Americans are awash in both credit and its evil twin, debt. The government, mirroring the people, is also overrun by both. A century ago, the U.S. was the largest creditor nation; today it is the largest debtor nation. That's a dangerous position to be in. Before the music stops playing, now would be capital time to start walking back this exposure by enacting responsible credit laws.
Currently, the opposite is taking place, with lenders easing underwriting standards, potentially setting up the economy for another mortgage-triggered financial crisis. Who will be left holding the bag - and at what point will the capacity to hold that bag be exhausted? While I myself can't make that prediction, I think it's sensible to expect that, one way or another, easy money will be followed by a hard fall.
What do you think? Below please find some news and views for advisors:
- AllianceBernstein has got a positive take on mortgage bonds.
- John M. Mason on the mounting costs Wells Fargo is paying for its abusive cross-selling.
- Danielle DiMartino Booth: What will happen to indexers when the music stops playing?
- Zachary Karabell: Diversification - 2016's unsung hero.
- WisdomTree agrees diversification is not dead, citing the example of small-caps.
- Roger Nusbaum: It's not practical for individuals to invest like the Yale endowment.