The Wells Fargo fake-accounts scandal is shining such a bright spotlight on this one bank’s issues that more pervasive problems with the industry’s sales practices are getting lost in the shadows. If left unchecked, these problems have the capacity to do far more long-term harm than isolated cases of fraud.
The banking and regulatory world is focused on remediating relatively rare instances of fraud. But data from our recent special report reveals that bigger challenges for the industry may stem from other problems, including customers’ general perception about their bank’s sales practices.
Overall, bank customers still feel their bank acts in their best interest (79%), can be trusted to do the right thing (82%) and acts ethically (81%). But many customers reported feeling pressured to open a new bank account or failing to understand the fees they may incur once they had already opened bank accounts — outcomes they did not want or expect.
Indeed, one of the most troubling examples of this is in the retail bank setting where we asked customers whether they had ever had an account opened or funds transferred without their knowledge. Surprisingly, 14% of respondents said yes!
These results are at odds with findings that show only 4% of customers believe their bank does not act ethically. But that is because few of these account openings were cases of fraud by bank employees such as what occurred at Wells Fargo. Instead, many customers reported having accounts that they did not realize were part of bundled deals including additional products — identity theft by a third party, cards or accounts opened to replace existing ones for various legitimate reasons, bank errors or simple misunderstandings.
The results are troubling. When customers do not understand their accounts, customer satisfaction drops dramatically. Among retail bank customers who say they were surprised by fees, 46% said they “definitely will” switch banks, compared with only 6% among those who were not surprised.
Evidence of a similar phenomenon is present in the wealth management space. Over the last five years, the number of customers who report being pressured into products they did not want or need has tripled. Accordingly, those who report being pressured to buy an unwanted financial product by a financial adviser are more than twice as likely to reduce the amount they have invested with that firm than those that do not receive a hard sell.
Does this mean that banks and wealth management firms should stop trying to sell customers additional products? Of course not. Appropriately applied sales effort yields positive results; the key is getting the formula just right.
For example, customers who believe that their bank is operating in their best interest demonstrate far greater levels of loyalty. Among the 49% of customers who “strongly agree” that their bank works with them to find the right products, 67% say they “definitely will not” switch banks and 81% say they “definitely will” return to their bank the next time they need a financial product. Among all other customers, only 24% say they “definitely will not” switch and only 43% “definitely will” reuse their bank.
Financial firms need to stop merely selling products and start advising customers on the financial services they need.
When customers feel that their financial institution understands their needs by asking them the right questions and offering them meaningful solutions, trust metrics shoot through the roof. This is a cultural issue that gets right to the heart of how financial services firms conduct routine customer service, onboard new customers and maintain ongoing relationships.
By shifting the focus to “How can I better help this customer?” instead of “How can I sell more product to this customer?” financial firms have the opportunity to leverage the goodwill they’ve worked so hard to cultivate over the past several years and to create indelible bonds with their customers.