I’m not sure if you saw the story last week where Wells Fargo was fined $185 million by the Consumer Financial Protection Bureau. What the agency discovered was that employees of Wells Fargo were opening bogus bank accounts and credit card accounts on behalf of customers. The bank’s employees opened these accounts in order to meet sales goals and qualify for certain bonuses. As a result, many customers of Wells Fargo incurred unnecessary fees. The settlement with the Consumer Financial Protection Bureau included a refund of those fees as well as a substantial penalty to Wells Fargo. Although, consumers were made whole there are some lessons that we can learn from this episode.
Cross selling has become very popular in America. Basically, cross selling is where you purchase something and all of a sudden the salesperson tries to get you to buy a related product or service. The reason for cross selling is quite simple and that is to generate more fees. It’s just not in the financial world that you see cross selling, it is just about in every aspect of our society. For example, if you buy a new TV they’re going to try to sell you additional warranty protection, or when you get a new mortgage they will try to sell you some sort of insurance. The bottom line in many situations, the additional product or service they are trying to sell isn’t worth the paper it’s written on. However, people get caught up in the moment and since the additional product or service generally isn’t that much money when compared to the initial product people say why not. Of course, what I always say is why. You would be surprised how much money you can save by avoiding many of the products and services sold by cross selling.
I’m not saying that in all situations the products and services sold by cross selling are a waste of money, because they are not. However, in many situations they are; my philosophy is why spend your hard-earned money for something you don’t need. Therefore, whenever you buy a product or service and they start to cross sell, be careful; be sure you should know exactly what you are buying. Also keep in mind that in most of the situations the person cross selling you is handsomely compensated for their efforts.
For as long as I’ve been in the financial world, which is over 30 years, I have tried my best to keep consumers informed about conflicts of interest in the financial world. When people receive commissions, bonuses and sales incentives based upon products and services that they are selling you it naturally creates a conflict of interest. Are they recommending this product or service to you because it fits your needs or because they will get an additional bonus or a nice sales incentive like a free trip? Because conflicts of interest are so common in the financial world, it is more important than ever that you protect yourself. When it comes to your finances, it is always a fair question to find out how that person is compensated. When they do receive commissions and/or sales incentives, you have a right to know so you can protect yourself.
I recognize it is sometimes uncomfortable to ask someone how they are compensated. However, as I tell people all the time- get over it. You have a right to know and after all, it’s your money so you shouldn’t hesitate to ask. In fact, one way you can tell if you’re dealing with someone who’s on the up and up is whether they answer your question regarding compensation or if they try to talk around it. To me, when someone in the financial world such as a financial advisor won’t talk honestly about how they are compensated, why should you deal with them? After all, if this is a person you are trusting with your investments, they should have no issue whatsoever in talking about compensation.
Cross selling is a fact of life in America and it’s not going to change any time soon. However, as consumers, just because someone wants us to buy something doesn’t mean that we should. Remember, take your time and there’s no problem whatsoever in saying no.
Rick is a fee-only financial advisor. His website is www.bloomassetmanagement.com. If you would like Rick to respond to your questions, please email Rick at -.