New allegations that Wells Fargo’s opening of fake accounts extend to third-party vendors complicate the bank’s ability to work with outside firms.
Wells Fargo WFC, +0.29% plans to launchrobo-advisor product aimed at millennials early in 2017. The new allegations are bad news for the new partnership with SigFig, a form that specializes in partnering with banks rather than brokers who use similar products to hone their recommendations. The program counts on younger savers, in particular, to create a sales pipeline for its full service wealth management business.
“When you think about who would use robo-advising more often, you think about the millennials,” said Tim Sloan, talking about the bank’s plans for the business back in June. Sloan is now the bank’s CEO, after the resignation of Chairman and CEO John Stumpf in October as a result of its $185 million settlement with the Consumer Financial Protection Bureau, the Office of the Comptroller of the Currency and the Los Angeles city attorney for creating millions of fake checking, savings, credit card and debit card accounts.
The settlement included allegations of employees moving money without the customers’ knowledge to make fake accounts appear legitimate long enough for them to gain credit for the activity. Some employees said they were forced to leave after missing or refusing to meet the account opening quotas while under intense pressure by management to make those goals by whatever means possible.
The latest alleged Wells Fargo scam was revealed in a lawsuit filed in New Jersey last week by three whistleblowers, internal investigators for Prudential Financial Inc. PRU, -0.29% Prudential partnered with Wells Fargo to sell low-cost life insurance policies to retail customers. After hearing about the other fake account scandal, Prudential asked its internal legal compliance team to investigate whether Wells Fargo bankers were also engaged in similar wrongdoing with their products.Their lawsuit alleges employees signed up mostly Spanish-speaking customers for insurance policies without their approval and in some cases bankers withdrew the monthly premiums from customers bank accounts.
The California insurance regulator announced on Monday that it would investigate the new allegations made by the Prudential whistleblowers. Prudential has now suspended its sale of the policies through Wells Fargo.
On Tuesday Rep. Elijah E. Cummings, Ranking Member of the House Committee on Oversight and Government Reform, and Sen. Elizabeth Warren, a Democrat from Massachusetts, wrote the CEO of Prudential Financial requesting a briefing and documents related to press reports of Wells Fargo bankers enrolling customers for insurance policies without their knowledge or consent.
Should retail customers, including those new to investing, start trusting Wells Fargo again?
Ira Rheingold, the executive director of the National Association of Consumer Advocates, told Marketwatch “If I were a retail customer, I would not trust Wells Fargo just yet.” Rheingold wants to know more about the fee structure for this product and how the bank will make sure customers are put into investments that meet their objectives, not the bank’s and its employees financial goals. “Wells Fargo hasn’t proved that its incentives based culture is gone for good,” said Rheingold. “The commission structure for its employes and the commissions it receives from its partners should be fully disclosed.”
Michael Kitces, an industry commentator who publishes “Nerd’s Eye View”, an educational platform for financial planners is less worried about Wells Fargo repeating its mistakes. He told MarketWatch that fraudulently opening investment accounts and investing those funds creates a risk-of-loss liability for Wells Fargo that’s exponentially greater than any fees they could earn.
“Wells Fargo could create new incentives to push the sales of its robo-advisor that might tempt someone to commit fraud. But the idea that Wells Fargo would create new fake robo-advisor accounts, after a Congressional inquiry about their last fake accounts,” says Kitces, “is the last thing I’d be worried about.”
A spokesman for Wells Fargo said he could not comment on the status of any of the ongoing investigations or the specific products or services being reviewed.
Wells Fargo’s shares closed slightly higher on Thursday than its closing price a year ago December 31, 2015. The S&P 500 index SPX, +0.20% however, is doing much better.
Wells Fargo on Friday separately reported that branch interaction fell 3% year-on-year in November and a 41% drop in consumer checking account opens.