Clearing Things Up: Transparency in Finance

The laws and regulations implemented over the last twenty years have made significant strides toward protecting individual investors and their investments. This important work is far from over, but regulations like CRM2 are pushing the industry toward transparency. Investors now have more access to information than ever before, and have begun to demand transparency, lower fees, and access to investing strategies that were previously only available to large institutional investors. As empowering as this progress has been for investors, there is still work to be done. As the recent Wells Fargo scandal has shown, conflicts of interests are rife within the financial services industry. The Wells Fargo debacle has highlighted the need for transparency, oversight, and fiduciary responsibility in the financial sector. If you’re going to pay someone to take care of your money, you deserve to get your money’s worth.

Wells Fargo, a U.S. bank, was caught opening 2 million unauthorized bank accounts and credit cards under existing clients’ names. After being exposed, they received a fine of $185 million USD. In 2015 they had revenues of $21.6 billion, making their fine little more than a slap on the wrist. John Stumpf, the company’s CEO, resigned several weeks later with a $20 million pension, $4.3 million in deferred compensation and about $109 million in stock options.

Why is this relevant to us? The Wells Fargo scandal is a prime example of what happens in an environment where the client’s success takes a backseat to corporate profits. The client’s portfolio, built up through years of hard work to help safeguard their future, is simply treated as a means to achieving a sales target. It is reprehensible, it is wrong, and it is unfortunately all too common.

The Wells Fargo case is the disastrous result of an environment where employees have to meet sales targets or risk losing their jobs. Not every bank opens fraudulent accounts for their clients, but they often do pressure their clients to pay for bank services they might not need. I worked in an environment like that early in my career.

When I worked at one of the top five Canadian banks, we were required to “sell” twenty banking products on a weekly basis. Within those twenty products you might find many different accounts, overdraft, credit cards, loans, lines of credit, mutual funds, mortgages, etc. If I had a client sitting in my office, I had to sell him as many products as I could. If by the end of the week I had not met my sales targets, my manager would pay me a visit and ask what went wrong even if the clients I saw had left with zero products and great financial advice. This system is inherently wrong.

It is impossible to achieve transparency in such an environment. This is not to say that all bank employees are bad people, they simply work for a company that puts its own interests ahead of its clients. The employees who do as their superiors ask move up through the ranks, whereas the ones who do not get fired or move on somewhere else like I did.

This problem touches all levels of the financial services industry, from local bank branches to insurance companies to brokerage houses. Again, not all firms fall for this short-term thinking and flawed view. The client ought to be priority number one. Just like in any other industry, companies who provide superior service and care to their clients will be rewarded for doing so.

In an environment of transparency, the client should fully understand how his or her money is being managed. This includes understanding the investment philosophy of the firm, the compensation structure, fiduciary responsibility, and the overall process by which your portfolio is invested. At Tulett, Matthews & Assoc., we take pride in educating our clients about what we do with their money in order to help them become enlightened and empowered investors. We welcome questions and feedback and are happy to provide the answers our clients need. Should you have any questions of your own, please do not hesitate to ask them. We are here to help you.