Banks' cross-selling and employee incentive practices are in for a thorough reappraisal following the revelation that thousands of Wells Fargo employees opened unauthorized bank and credit card accounts.
The habit of "managing to the metric," in which salespeople focus on quotas and incentive goals while executives obsess about earnings targets, was the likely culprit behind Wells employees' attempts to game the system, critics said.
As a result, regulators, analysts and investors are likely to take a hard look at how other banks push employees to sell multiple products to customers.
"The industry may face more scrutiny as it relates to cross selling and the underlying incentives that spur that cross selling activity on the part of employees," Allen Tischler, senior vice president at Moody's Investors Service, said in an interview.
Wells appeared to already reach the conclusion that sales goals were part of its problem. The bank announced Tuesday that it was eliminating product sales goals for employees in retail offices.
"We want to make certain our customers have full confidence that our retail bankers are always focused on the best interests of customers," Wells CEO John Stumpf said in a statement.
The move comes ahead of scrutiny on Capitol Hill and policymakers. The Senate Banking Committee is expected to hold a hearing Sept. 20 on the enforcement action, which will likely focus on executive compensation. Treasury Secretary Jack Lew on Tuesday signaled he was also concerned with improper incentives.
"It's bad behavior [regulators] were correct to take action against," Lew said in an interview on CNBC. "This is a wake-up call. It should remind all of us that culture and compensation make a difference. How you reward people, how you motivate people, and what values you hold people to matter."
Tischler also wrote in a research note that Wells' "vaunted cross-selling capabilities were inflated, its incentive structure had led to pervasive inappropriate practices, and its retail banking sales process lacked adequate and effective oversight."
Wells agreed to pay $185 million in fines and spend $5 million in restitution to customers who may have been charged fees for unauthorized products and services for which they did not sign up. The San Francisco bank has terminated 5,300 employees, or roughly 2% of its workforce, who allegedly engaged in the conduct from 2011 to 2014.
For decades, Wells has touted its cross-sell ratio as the strategy behind its success, one that has been emulated by other banks.
Wells sells six products, on average, to each of its retail customers. That "stickiness" makes it difficult for customers to switch to another bank, though it is unclear how satisfied customers are with its hard-sell tactics.
Some said the bank doesn't pay enough attention to the potential for fraud.
Steve Morang, the president of the San Francisco chapter of the Association of Certified Fraud Examiners, held a fraud training seminar at Wells Fargo's conference center on Friday, just a day after regulators announced the settlement. About 75 people, including some Wells employees, showed up, but the bank did not ask for more training, he said.
"They didn't care. They didn't come to it; it's always a reactive culture we live in," Morang said. "We're sitting in Wells Fargo's offices doing a conference on fraud and it was so ridiculous that this could have been happening for this number of people and yet the bank has all of these compliance, fraud and internal investigations officers, and it went by without anyone raising a red flag."
Morang said cross-selling itself isn't to blame. Instead, he cited the pressure on banks to produce strong quarterly results and an incentive structure that boosted pay for employees based on the number of products sold to consumers.
Charles Wendel, the president of the consulting firm FIC Advisors and a former banker, said cross-selling traditionally focuses on what products a customer might need. It's not an abuse of the relationship.
"Unfortunately it's the worst extreme example of cross-selling being done inappropriately, and it's the kind of the thing that gives cross-selling a bad name," Wendel said. "I think other banks, especially big banks, are asking, Am I doing anything like this?"
Wells is required within 45 days to select an independent consultant with experience in consumer-finance compliance issues to conduct a review of its sales practices within its community branch network, according to the consent order. The review must assess whether its policies and procedures are designed to ensure that its sales practices comply with all applicable consumer finance laws and that employees to not engage in improper sales practices.
The review also will look at performance management and sales goals.
Camden Fine, the president and CEO of the Independent Community Bankers of America, said he is outraged by the fraud allegations and fearful that Congress will take further actions against all banks for the bad behavior of Wells employees. One area lawmakers or regulators could target are improper incentives for employees.
"What will happen is, Congress will pass a whole new set of harsh regulations that will rain down on the heads of community bankers that had nothing to do with this," said Fine. "If a community bank had done something identical to this, the CEO, senior officers and the full board of directors would be hauled into court and prosecuted."
Fine and some analysts also heaped criticism on Carrie Tolstedt, the former senior executive vice president of community banking, who retired in July. Tolstedt had overseen Wells' 5,500-branch network since 2007. She was succeeded by Mary Mack, the former president of Wells Fargo Advisors.
Mike Mayo, an analyst at CLSA, wrote in a research note Monday that the fines paid by Wells "hurt relations with regulators and employees and … probably should lead to a pay claw-back from the community bank head (Carrie Tolstedt.)"
Mayo also wrote that it was "unclear why this issue did not get raised at [Wells'] investor day during the community banking presentation."
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Corrected September 13, 2016 at 1:01PM: An earlier version of this article misstated Mary Mack's previous position.