Two recent examples of Wall Street’s abuse of its customers prove that Wall Street still doesn’t get it. The customer comes first, not the firm or the broker.
It’s no wonder that first up is Wells Fargo, which has been dogged for almost two years with repeated scandals, all revealing a toxic culture that emphasized finding ways to generate fees over service to clients.
The Wall Street Journal last month reported that Wells Fargo financial advisors pushed clients into products that “generated additional fees and often moved client assets between different products or investing platforms to generate more revenue and bigger bonuses.” The report cited more than two dozen former employees and documents reviewed by the Wall Street Journal as its sources.
Wells Fargo advisors frequently targeted “wealthy clients in Wells Fargo’s private bank, sometimes steering them into alternative investments of which Wells Fargo was the majority owner,” according to the Journal.
These disclosures led to investigations by the Justice Department and the Securities and Exchange Commission, according to the Journal.
A similar culture of commission-driven abuse of its customers was exposed by the Journal. American Express, or AMEX, for more than a decade raised currency prices on business clients without warning. The Journal described an AMEX environment focused on bringing in as many new clients as possible and squeezing revenue out of them before they departed.
“For more than a decade, American Express Co.’s foreign-exchange unit recruited business clients with offers of low currency-conversion rates before quietly raising their prices, according to people familiar with the matter,” the Journal reported. “AMEX’s foreign-exchange international payments department routinely increased conversion rates without notifying customers in a bid to boost revenue and employee commissions, the people said. The practice, widespread within the forex department, was occurring until early this year and dates back to at least 2004, the people said.”
The Journal reported that AMEX sales people would often tell potential clients that the company would beat the price they were paying banks or other financial institutions to convert currency and send money abroad. The sales people didn’t inform customers that the margin, a markup that AMEX tacks on to the base currency exchange rate, was subject to increase without notice. Prospective clients with certain AMEX cards were also told that they could earn points for the transactions.
AMEX employees described an environment focused on bringing in as many new clients as possible and squeezing revenue out of them before they left. Employees were told that the average foreign currency exchange customer did business with AMEX for around three years. Tellingly, one employee said, “Who cares if they come or go? Let’s make money while we have them.”
These two instances of putting broker commissions and fees ahead of customers’ best interests underscores the need for the SEC to pass a fiduciary duty rule which puts investors’ interests first.
Not only would this be good for investors and customers, it would also be good business for Wall Street.
Zamansky LLC is a New York law firm which represents investors in court and arbitration cases against securities brokerage firms and issuers. The firm may represent investors in cases against companies mentioned in this blog. Zamansky LLC also represents investors in arbitration cases against UBS and other brokerage firms regarding Puerto Rico bonds and UBS closed end bond funds and other investments. https://www.puertoricobondfundsattorney.com/en/