As a professional headhunter, I always discuss the culture of my client firms with the financial advisers with whom I work. Quite often, instead of inspiring curiosity, I get an eye roll, as if I had told my teenage daughter to clean her room.
Corporate culture, of course, has unfortunately become an overused cliché when talking about a company. Is culture actually something tangible that an interested job candidate needs to learn about to see if he or she is a proper fit? Or is the term deserving of palpable cynicism — i.e., the eye roll?
Wells Fargo is facing the challenge of reinventing and restating its culture. In January, it published an extraordinary, 100-plus page Business Standards Report called: "Learning from the past, transforming for the future."
In the executive summary on page four, Wells Fargo identifies its past culture as one of the root causes of its 2016 problems: "The causes included performance ]management and incentive programs and a high-pressure sales culture [emphasis added] in the Community Bank that drove behaviors that were both inappropriate and inconsistent with our values…." Indeed, the word culture is in the document 65 times. The culture of Wells Fargo became an embarrassment to the financial services industry, leading to employees opening up false accounts for customers as a standard operating procedure, literally millions of times.
Compensation drives behavior. At some point in time, Wells Fargo executives incented this activity; it did not happen in a vacuum. The bank had somehow morphed into a competitive sales culture that drove employees not only to sell, but to cheat. That is, employees invented results in order to win contests, to get pay raises, to get promoted.
One ex-Wells Fargo adviser told me he decided to leave when clients were questioning his ethics merely because of his continued association with the firm: "I think that this scandal was so pervasive that it has become a corporate tattoo. It won't be forgotten easily."
Wells Fargo's efforts to change are documented thoroughly in the Business Standards Report. Can a company as sprawling as Wells Fargo truly change its culture? Only time will tell whether customers will forgive and forget.
But how did senior leadership, who I believe did not wake up in the morning dreaming how to falsify sales contests and dupe an unsuspecting customer base, become so disconnected from their business that they allowed this to go on for years?
I suspect that the answer lies in the fact that their leadership had either never sat in the seats that directly dealt with customers or had been so long removed from those roles that they no longer understood how business at the point of sale was actually done. Somebody at the top realizes that more credit cards and more checking accounts mean more money to the bottom line. Somebody figures out how to incent staff to sell more credit cards and to open up more checking accounts. What makes a customer decide whether he needs or wants more credit cards is an afterthought. Incentives disconnected from customers' needs are perhaps the definition of how a company scandal begins and how culture gets corrupted.
Many startups in the wealth management space also have a culture issue. Startups are often backed by private equity investors, who usually want to sell their stakes in order to deliver returns on their investment. These investors are also unlikely ever to have been a financial adviser. With every change in ownership structure, the culture of the startup, often one of the biggest selling points in attracting advisers in the first place, will change along with the new leadership's growth strategy. The adviser who joins a private equity-backed wealth management firm who does not think that the culture of the firm will change is like a surgeon who expects to operate and not see blood.
So what is the ethical, cynical adviser who wants to work in a client-first, consistent culture to do? While the Wells Fargo scandal is an extreme example, all of the wirehouses are constantly tweaking at compensation to encourage more profitable activities, regardless of whether those activities are actually good for their clients. At the same time, they "defer" more and more compensation, making it more expensive for advisers to leave. These corporate cultures have increasingly become "us" (the advisers) versus "them" (senior leadership who have never been advisers).
As the diaspora out of all of the wirehouses continues, it is clear that many advisers are not willing to wait patiently to see if their corporate cultures will morph into something they will like. Those who do stay cite their branch culture as a reason not to move, at least as long as their branch managers stay in their seats.
How does an adviser inoculate himself from the toxicity of leaders who have never been advisers? How does an adviser immunize himself from the the branch management merry-go-round? More often than ever before, the answer is for the adviser to form his or her own culture by going independent, either as a registered investment adviser or under the umbrella of an independent broker-dealer.
The independence revolution is here to stay.
Danny Sarch is the founder and owner of Leitner Sarch Consultants, a wealth management recruiting firm based in White Plains, N.Y.