Cross-Selling Fraud: Broker Sold Branded Investments
The Financial Industry Regulatory Authority has announced a wide-sweeping investigation of brokerage firms to evaluate whether they committed cross-selling fraud.
FINRA suspects that numerous investment firms are incentivizing stockbrokers to push in-house, branded investment products onto retail customers. FINRA suspects that member firms are also pushing proprietary credit cards, new bank accounts, and other in-house services onto customers.
These incentives are causing stockbrokers to sell their client’s bad investments, resulting in significant and completely unnecessary financial damages.
Wall Street Banks Promoting Deceptive Sales Practices?
FINRA has asked member firms to provide information from January 2011 through September 2016. This will determine whether brokerage firms are adequately supervising their employees, or if they are looking the other way while brokers endanger the best interests of their customers in the name of making a profit.
The investigation could reveal whether Wall Street brokerage firms are purposefully creating incentives. Incentives are bonuses and quarterly sales quotas firms use to promote deceptive sales practices. Then, they are turning the other cheek when advisors break industry rules and regulations to the detriment of investors.
Some of the information requested by FINRA includes:
- Cross-selling programs that incentivize the sale of in-house (proprietary branded) investment products, and how those programs affect employee performance ratings, terminations and promotions.
- Employees who were disciplined or terminated because they did not meet sales goals relating to in-house products.
- Information about customer arbitrations, complaints and other claims citing violations relating to cross-selling.
Investigation Prompted by Wells Fargo’s Massive Cross-Selling Fraud
FINRA’s investigation is largely in response to the much-publicized scandal surrounding Wells Fargo’s unlawful cross-selling scam. This scam significantly harmed Wells Fargo investors while enriching Wells Fargo.
Regulators ultimately fined the bank $185 million for its unlawful program of opening approximately 2 million credit card and bank accounts on behalf of customers without customer authorization.
How to Know If You’ve Been a Victim of Cross-Selling Fraud
As a hypothetical example, unlawful cross-selling might involve a Wells Fargo stockbroker recommending and selling Wells Fargo-branded mutual funds to customers. This is not because the funds are more appropriate for the customer. It is because the broker will get a bonus for selling a Wells Fargo-branded product.
If you have a high concentration of mutual funds or other investments labeled with the name of your brokerage firm in your portfolio, and you lost money on those investments, you may be the victim of cross-selling fraud. Contact the Consumer Investor Resource Center to find out how cross-selling fraud victims can try to get their money back.