In case you haven’t heard, one of the nation’s largest financial institutions, Wells Fargo, was recently caught cheating a large number of its customers out of large amount of their money. While the details of the scam aren’t particularly important to making my point, the problems experienced by large financial institutions like Wells Fargo, their customers and the rest of us, certainly are.
I have worked for a large, multinational, diversified financial services company, and have observed these companies and their dealings with customers from a close distance over the past twenty years. Both my experience and my observation inspire great concern for the millions of customers who naively trust these companies and their employees for financial advice.
Neither these companies, nor their employees – most of whom are surely perfectly nice people without malicious intent – are trustworthy. In fact, I will argue, they are not your allies in life, but your adversaries. They should be assumed to be a threat to your financial well-being and dealt with as such.
In a nutshell, here are the problems with companies like Wells Fargo, which include every publicly owned financial services company, and then some. For the sake of brevity, I’ll skip the story of how we got to our current circumstance, which is quite a tale, in itself, and focus on the current situation.
Financial Services Companies Are Too Large. With many thousands of employees, it is impossible for CEO, or even the top-level executives to know what is going on along the front lines – where customers are communicating with the company, and important decisions are being made. While the CEO of one of these companies may claim that their employees are dealing honestly with customers, the truth is that they have no idea whether, or not, their statement is true.
Financial Services Companies are Too Complex. The de-regulation of banks, insurance companies and investment firms over the past 20 years has allowed what were separate lines of business to merge and overlap. The large financial services corporations we have today are so complex that they are impossible to clearly and thoroughly understand. If the company’s employees don’t understand their business, then they can’t effectively manage it.
Financial Services Companies Lack Accountability. More specifically, it is almost impossible to find someone at one of today’s firms that will accept responsibility for dealing with customers. This isn’t surprising given the high rates of personnel changes and the way that customers are passed from one employee to another as they attempt to deal with the firm. Further, it’s a safe bet that no single individual is responsible for you, as a customer, and accountable for the outcomes that you either suffer or enjoy as the result of your dealings with firm.
Financial Services Companies are Publicly Owned. While not all firms suffer from this problem, if you’re not dealing with a small, local firm, you are probably dealing with a public company. The problem with public ownership is that many, or even most, of the company’s owners are interested in maximizing the return on their investment. Public owners tend to have a short time-horizon and don’t really care what the company does, or how it does it, as long as their investment turns a profit.
These problems combine to create an environment that begs for the exploitation of customers for profit. The company’s employees, from the front line, to senior management, want to maximize their compensation by maximizing revenue and profit. The company’s owners want maximize the return on their investment by maximizing profit growth, without regard for much else. So, the firm’s stakeholders are primarily – and often exclusively – interested in maximizing profit. This profit, it turns out, comes only at the expense of the firm’s customers. The company’s win is your loss.
Understanding that, regardless of what they say, bankers, insurance agents and stock brokers are your adversaries, is a key to protecting your interests. This understanding is particularly important for TSP investors. As a TSP investor, you have access to the best retirement investment vehicle you’ll find. It’s low cost, simplicity, efficiency and provision of the G Fund make it unbeatable. Unfortunately, the business models used by financial services firms usually require that you hand your money over to them so that they can skim fees or commissions from your assets. They can only advance their interests if you compromise yours and move your money out of the TSP. For the reasons I’ve just mentioned, trusting this advice is a poor bet.
Written by Mike Miles
For the Federal Times
Publication November 7, 2016