How Wells Fargo Will Change Our Industry

The shocking news of massive openings of fraudulent accounts at the nation’s most trusted large bank has rocked our industry.  In addition to the personal implications for so many Wells employees past and present, the reputation damage to the entire industry is significant.  Boards and management teams across the country are asking the question:  what should I do now to protect our customers and shareholders from such a debacle?

1. Find out what really happened
   
   The OCC and CFPB have issued a consent order to Wells Fargo, spelling out what misdeeds took place and what corrective actions are expected.  Take time to fully understand to the extent possible what occurred. It’s not as apparent as initial reports indicated.
    
2. Understand the difference between the Wells Fargo practices and your own
   
   It has been said that culture eats strategy for breakfast.  This was certainly the case here.  There is a fundamental difference in product selling vs. relationship selling, between sales goals and sales leadership.  The vast majority of community banks have not created the untenable pressure exerted on many Wells employees to sell.  Your incentives and management practices likely vary widely from what was practiced at Wells.  Understand and highlight the differences.
    
3. Review your own incentives
   
   How do your incentives vary from Wells’ reinforcement, even inducement, of bad sales behavior? Are you inadvertently encouraging your team to do the wrong thing for customers?
    
4. Establish additional checks and balances as needed
   
   One of the major failures at Wells was the absence of sufficient checks and balances to prevent massive fraudulent account openings.  While individual wrongdoing cannot always be prevented (when a bad person wants to do a bad thing, it is difficult to prevent it), appropriate checks and balances certainly can prevent numerous bad acts by bad actors.

Here are some further thoughts that elaborate on these four recommended activities:

• Evaluate how intense the pressure to sell is within your organization
• How easily can employees be terminated for failure to meet stretch sales goals?  Set reasonable minimum performance expectations to ensure that all employees are committed to fully serving their customers, yet are not compelled to resort to bad practices in order to meet those goals
• Remember, cross-selling per se is not a bad thing.  Our customers should benefit from our team members’ professional knowledge and advisory skills such that ALL their needs are met through your product suite.
• Only reward employees for products that are USED, not just sold.  There is no better validation to product value for customers than its usage.  When a customer uses a product they get the value intended from it.  All too often incentives are paid for all products sold, including those that are inactive or unused, thereby rewarding sales that do not benefit the customer
• Reward product solutions that benefit all three major constituencies – customers, shareholders and employees.  Evaluate your incentives with that screen in mind
• Align your incentives at the branch level against branch opportunity, staff turnover and customer needs
• Ensure that bank-wide sales incentive oversight is effective.  The audit team, even if highly competent, may find it difficult to effectively evaluate all the aspects of your incentive programs.  Having a person on the retail bank staff with both sales and operations background is the most effective resource to evaluate your incentives and what opportunities they might create for bad practices.  Examples might include:
  
  
  • Reviewing performance of staff with large bank experience
  • Identification of new or emerging product sales trends
  • Focus on best performers to ensure they get their results the right way and support them during sales slumps
  • Examine opened and closed account trends
     
• Create a playbook that documents thoroughly the reasons behind your incentive programs and the culture in which they are embedded
  
  
  • Start by spelling out your culture, values and vision
  • Explain how sales goals fit into that culture
  • Detail safeguards and audits to ensure your team behaves in accordance with your values
  • Explain the extensive support processes you offer employees to assist them in successfully executing needs-based selling to your customers, selling them every product they need and nothing more
     
• Create a feedback loop to verify intentional account opening by the customer, facilitating positive customer confirmation after account opening.  Much like you verify a wire or an ACH before sending it out, or like texts and emails verifying money transfers
• Communicate your culture and values again to your employees.  Reinstitute (if you haven’t already) town hall meetings where open questions can be asked anonymously to hear directly from employees whether bad behaviors occur and to communicate your expectations and intolerance of such behaviors.  Remind everyone of the ethics line you have as well.  Reiterate your mantra – do what’s right!  Ask “When do we not live up to our values”?
• Encourage your employees to surface “makes no sense” activities – it will make your bank better overall

In summary, it is easy to overreact to this situation.  Our reputation as an industry has been dealt a serious blow.  At the same time, ethical sales are in our customers’ best interest, as is appropriate cross-selling.  We should be careful not to overreact, among the management ranks or in the board rooms.

At the end of the day, our reputation is the cornerstone of our business, and it is founded on trust.  Without a strong ethical backbone, we betray our customers’ confidence.  The most appropriate response to the Wells Fargo debacle is to cherish and regain our customers’ trust through competent employees doing the right thing, one customer at a time.