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Modern Banking


Management guru Peter Drucker once said, “What gets measured gets improved.” The corollary in sales is, “what gets measured gets sold.” Plus, you know, “be careful what you wish for.” I have worked in a commissioned sales environment in every role I have ever had until I came to Gainplan. I can tell you firsthand that both of these things are true. I have watched companies run by really smart people set odd sales goals so not so smart salespeople could manipulate them and make extra money.  At Chase (full disclosure, I worked at Chase), it usually came down to opening retail checking accounts and credit cards. The bank would say, “Open more accounts,” and the bank staff would open way too many accounts. Later, the bank would ask, “Why are so many customers closing accounts?” Well it turned out they had accounts they didn’t really want. This happened to Wells Fargo recently and Matt Levine at Bloomberg wrote a great piece on what happened. The Bank paid $185 million for opening 1,534,280 accounts without customer consent since 2011. Wow. Sure, the bank will pay $185 million and refund roughly $2 million in banking fees that the customers were forced to pay; but I have to wonder if that’s enough for them to wake up to what is happening inside their branches. Wells has terminated 5,300 employees over the years for fraudulently opening accounts for people and the bankers still don’t get it. This has got to be a clear indication that there are conflicting messages inside the bank. Seriously, there is (was) an employee at some point that was so incentivized (threatened?) to open up checking accounts that the 5,299 terminated employees that came before him were not enough of a warning to stop scamming people. We are not talking about your usual banking scandal where one or two overzealous traders wanted to make a ton a money so they did something illegal, then kept doing it until they got caught. We are talking about thousands of low-level employees engaging in “un-orchestrated” fraud against millions of consumers…over 5 years! According to court documents, “The quotas imposed by Wells Fargo on its employees are often not attainable because there simply are not enough customers who enter a branch on a daily basis for employees to meet their quotas through traditional means.” I suppose you could call their actions non-traditional? Of course these people should lose their jobs; low level or not, fraud is fraud. But you have to hold management responsible too. At the very least they should have been aware of what was happening. Employees would not only open accounts but also sign customers up for online banking and debit cards (that the bankers would have to active themselves!). Let me tell you, bank accounts that don’t have any money are not used to pay bills or make debit card purchases. So apart from the $2 million in overdraft fees (which will be repaid) these accounts generated no revenue! This doesn’t take into account the cost of the employees spending hours perpetrating the fraud, the costs of maintaining online baking resources, plus printing and mailing out debit cards. As with most crimes, you have to wonder if the criminal would have put this much time and energy into something productive, could they have made more money? Regarding the individual employees, it’s hard to say. If you lump all the employees together under the Wells Fargo umbrella then the answer is yes, unequivocally. The bank could only have lost this much money on such a grand scale if the bank staff had just raided the safe and walked out. What is absolutely bonkers about this is that it is not your typical crime. The staff didn’t see this as a way to “game” the system to make more money or stick it to their employer; they did it because they desperately wanted to keep their jobs. I have heard people refer to victimless crimes but this is sort of the opposite scenario. There is no clear winner. The customers didn’t benefit, Wells Fargo didn’t benefit, and the staff didn’t really gain anything besides keeping their job (slightly) longer than they would have for not meeting the sales quotas. I never thought I would say this but maybe those block chain guys are on to something…


A robot I can love


In my world (investing and financial planning) there are no shortages of robots. Affectionately called robo-advisors, these plucky little computers help people make (or lose) money for a fraction of what it would cost to pay a human. Well, now we have robo-recruiters. Thank goodness. Seriously. People are preposterously bad at hiring. When you consider that most of what people know about human relationships is inherited/learned from their family experiences as children, it sort of makes you want to never trust a human to be in charge of any relationship. When most of our work was blue collar in nature this wasn’t such a big deal. Pipefitters could either be bad at fitting pipes in to other pipes or good at it (I still don’t really know what a pipefitter is). The culture of the company didn’t really matter as you could assume part of the culture was “we’re good at our jobs.” A pipefitter could work anywhere while doing good work and presumably they would earn a living commensurate with their skill. As long as I am referencing Drucker (see above) I should also mention that he once said that in white collar work the company’s values are at least as equally important as the candidate’s skills. Many hiring managers still focus entirely on the utility of the job in question when vetting candidates. That is, until now.  Deutsche Bank will begin using online dating algorithms to assess candidate pools.  Using questionnaires answered by employees with favorable reviews, the computers will assess the answers of job seekers. This is great because the rules weren’t designed by people. In a traditional algorithm model (like trading) a human person builds the formula and tells a computer, “Do this.” With Deutsche Bank, the computers are left to make their own decisions. Conceivably, the machine could make hiring recommendations that completely baffle company recruiters. “Koru, the company that carries out the profiling, says there are no right or wrong answers, and no politically-correct judgments — only comparisons of candidate responses with those of top performers at the organization doing the hiring. If those people happen to be difficult loners who never back down, so be it.” This is either going to be really great or really horrific. Either way I can’t wait. 


Speaking of Robots


I have written about Betterment in the past but chose to ignore their recent debacle during Brexit. Well, I must not have enough news this week because I was interested in an article from The Journal that explains the financial advisors that use Betterment are still mad at them. In case you missed it, following the Brexit market drop, Betterment halted trading on all their platforms and blocked advisors from selling out. There may be some iteration of this where there is good work done, you know stopping investors from making a poor, emotional decision, but this doesn’t appear to be that. It’s sort of like when, in a movie, a computer achieves sentience and enslaves the human race because we are not capable of making good decisions for ourselves. This is like the first step of that. One Betterment advisor stated, “He plans to limit the number of clients he manages through the platform by, for example, not using it for people who are newer to investing and may require more frequent portfolio changes during a volatile market.” Ummm, “newer” investors need more frequent portfolio changes during a volatile market? I’m honestly ok if Betterment stops that guy from moving money in his clients’ portfolios. There are two take-aways here. One, do not invest with that guy. Two, someone please see if Betterment is a subsidiary of Skynet. 



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