In a world where “big banks” are practically considered a dirty word, Wells Fargo used to stand out from the others. For over 150 years Americans banked at the institution with confidence.
In a 2010 Forrester’s annual Customer Advocacy ranking of nearly fifty leading financial institutions, customers ranked Well Fargo highest among big banks, with over forty percent surveyed agreeing with the statement, “My financial provider does what’s best for me, not just its own bottom line.”
But in the last few months a scandal has come to light that puts a serious blight on Wells Fargo’s reputation. What does it reveal about big banks and the way we should think about them in the future?
Wells Fargo and Its Customers
The scandal first broke in September, when federal regulators revealed approximately 5,300 Wells Fargo employees had been fired for committing fraud against their customers. Since at least 2011, staffers had opened extra bank and credit card accounts in their customers’ names, without their knowledge or consent, in order to meet sales quotas.
The New York Times reports Wells' staffers deliberately targeted older people suffering from memory problems, immigrants with a language barrier, and college students who had never had a bank account before. All were deemed unlikely to notice the deception. Of even greater concern, these were also largely low income victims, on whom the bank’s penalties and fees would have the most destructive impact.
Nevertheless, you might think these incidents don’t necessarily reflect poorly on the bank as a whole. After all it wasn’t the CEO, but his employees who opened the fake accounts. Once it was discovered, the guilty parties were fired, and the victims were refunded their money—about $2.5 million was paid in restitution, on top of the $185 million in fines the bank paid to the Federal Consumer Financial Protection Bureau, the U.S. Comptroller of the Currency and the city and county of Los Angeles, CA.
However, it’s important to note that the reason this happened was because of the extraordinary pressure Wells Fargo put on its employees to meet sales goals, including threats that anyone not meeting these quotas would be fired. While Wells Fargo as an institution never explicitly sanctioned the fraudulent behavior, CNN reports in many cases management and executives encouraged the fraud as a strategy to meet quotas.
What this reveals is that Wells Fargo as a whole created an environment in which their bottom line was far more important than the welfare of their customers. Employees reported feeling anything was acceptable, as long as they made the sale, and management was willing to turn a blind eye to unsavory doings, as long as they produce results.
Wells Fargo and Its Employees
Wells Fargo’s sales policies have had a significant impact, not only on its customers, but on employees as well, even those who had nothing to do with its cross-selling activities. Opening fraudulent accounts to meet sales goals served to boost company stocks artificially. Once the scandal broke, the bank’s shares dropped significantly.
This was bad news for all its investors, but particularly for employees who had 401(k) plans through the company. Their portfolios contained significant investments in Wells Fargo stock, causing their retirement accounts to suffer large losses.
Any company that manages investments for its employees has a fiduciary responsibility to do what’s best for its workers, rather than itself. But Wells Fargo deliberately stayed mum about the fraud, allowing their stock to inflate artificially, and continued investing employee retirement funds into it, knowing what would happen when the practices came to light.
As a result, Wells Fargo is now the subject of a class action suit by employees who were harmed by their actions. They’re seeking restitution of the lost funds from their 401(k)s.
On the surface, Wells Fargo appears to be making amends for its mistakes. Not only have they refunded the money customers unknowingly paid for the phony accounts, they’ve also reportedly abolished sales quotas to remove the pressure from their employees.
But actions speak louder than words. The way this institution has treated both its customers and workers throughout this debacle shows just how little they cared about the well-being of either. It also revealed they couldn’t be trusted to do the right thing for customers or their employees.
The most worrisome part is it’s not just Wells Fargo. Numerous large banking institutions have been involved in financial scandals over the last few years, from JPMorgan Chase to UBS, Libor and more.
This is not to say all big banks are dishonest. There are certainly some that are trustworthy; but which ones? You’ll never know your bank is operating against its customers’ best interests, or what the repercussions will be, until the scandal breaks. By then it’s too late.
Wells Fargo, one of the oldest banks in the country, was also once one of our most trusted financial institutions. If it can become embroiled in this level of fraud, with attendant disregard both for its customers and the future retirement security of its employees, then perhaps it’s time to limit big banks’ monopoly on our financial lives.
One way to mitigate both the risk of fraud, as well as the devaluation of paper assets, is with a Gold IRA. This strategy offers investors the option to hold physical precious metals in addition to market-based assets, thus allowing them to, in effect, take some of their retirement savings off a very shaky table.
Trevor Gerszt is America's Gold IRA Expert, CEO of Goldco Precious Metals, and holds a position on the Los Angeles board of the Better Business Bureau.
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