Massachusetts securities regulator William Galvin is investigating large banks and sales practices broadly known as cross-selling, the practice of financial institutions getting clients to buy multiple products and services.
Mr. Galvin's investigation comes as cross-selling by banks and brokerage firms faces broader scrutiny. JPMorgan Chase & Co. earlier this year said it had received subpoenas and inquiries from the Securities and Exchange Commission and other regulators about how it sells its own mutual funds and proprietary products.
And the Wall Street Journal this week, citing unnamed sources, reported that the Office of the Comptroller of the Currency and the San Francisco
Federal Reserve are questioning the sales culture at
Wells Fargo & Co. The bank, which has a leading wealth management subsidiary, is one of the more successful financial institutions at cross-selling.
Earlier this year, the Los Angeles City attorney filed a lawsuit against
Wells Fargo alleging a high pressure sales system for the bank's employees.
Cross-selling occurs when a banker or financial adviser takes an established relationship with a client and expands it to a broader range of products without the full knowledge or consideration of the client's financial life or needs, said Stephen Winks, an industry consultant.
A spokesman for Mr. Galvin, the secretary of the commonwealth of Massachusetts, confirmed that he is looking at cross-selling.
“We are looking at banks for cross-selling and an aggressive approach to selling their own (proprietary) bank securities products and what was involved in selling them,” said the spokesman, Brian McNiff.
He would not name the specifics banks under investigation. “The focus is on the aggressive approach and if anything was wrong with that,” he said.
Mary Eshet, a spokewsoman for
Wells Fargo, said the bank is fighting the Los Angeles city attorney's lawsuit.
“We disagree with the allegations in the L.A. city attorney's lawsuit and intend to defend ourselves,” she wrote in an email. “
Wells Fargo's culture is focused on the best interests of its customers and creating a supportive, caring and ethical environment for our team members.”
When asked about the reported investigation by the Federal Reserve, Ms. Eshet said the bank did not comment about discussions with regulators.
Mr. Winks said cross-selling is commonplace in the financial services industry.
“It's very common," he said. "In some cases there can be incentives (for bankers or financial advisers) that work at cross purposes with the clients,” said Mr. Winks, who was an executive more than three decades ago at Wheat First Securities, one of the brokerage firms that would eventually comprise
Wells Fargo Advisors.
“For example, compensation for a bank broker is determined by how well they adhere to the compensation criteria for opening new accounts or selling mortgages,” he said. “They are awarded or penalized on their ability or inability to do so.”
Meanwhile, clients can get into trouble when large wirehouses or banks cross-sell products, said Scott Silver, a plaintiff's attorney. Mr. Silver pointed to the current rash of arbitration claims by investors against
UBS Wealth Management Americas that focus on the sale of proprietary, Puerto Rico closed-end bond funds.
“Just take a look at
UBS,” Mr. Silver said. “The brokers said to clients they should buy more
UBS Puerto Rico bond funds and borrow from
UBS bank to do so.”
UBS declined to comment on Mr. Silver's remarks.
“It is a growing problem,” said Mr. Silver. “We've seen quite a few investor complaints where an elderly client has a CD at the bank and gets steered over to its securities arm of the bank. That's a breach of fiduciary duty on the banks side of the business.”
UBS declined to comment
