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What We’re Reading This Week

Wells Fargo


Well, based on recent events this will (hopefully) be the last time I have to write about Wells Fargo. Why? Because John Stumpf resigned. Errr, this was inevitable right? Not because he is a bad man but because he is 63 and has been making tens of millions of dollars for the past few years. I am 31 and if I made tens of millions of dollars for like 6 months I would retire. Which, I guess, is as much proof we need for why I am not a bank CEO.  “This was John Stumpf deciding that the best thing for Wells Fargo to move forward was for him to retire — even though that was a very difficult decision,” according to to new CEO Tim Sloan. “He wasn’t fired” or even “gently pushed” by the board. However, despite leading the bank through one of the most difficult periods in recent history (2008 financial crisis) and turning it into the world’s most valuable bank he was “humiliated” by the senate and “publically disgraced” in spite of his best efforts to atone. He willingly gave up $41 million in compensation as punishment for something of which he likely had no part. Now, he will be remembered as the guy at the helm of Wells Fargo that allowed thousands of bankers and branch managers to steal people’s identities. People seem to want to criminalize him, which I think is 100% related to being angry at someone and Stumpf being an easy target.  In order to rationalize the conclusion that he is responsible you have to sort of imagine this 63 year old millionaire “popping in” to branch locations to fraudulently open extra credit cards for people. I really like that thought. All the young bankers gathered around him as he shows them how to lie, cheat, and steal. That sounds crazy right? Well, members of congress and the senate have called for Stumpf to be criminally prosecuted and arrested! They called Wells Fargo a “criminal enterprise.” What?!? I’m honestly not sure what is more disturbing, the idea that these politicians know that Stumpf isn’t running a criminal enterprise and they just want to use him as a punching bag or that they truly believe that the CEO of the country’s largest bank is directly responsible for the company’s front line employees. Does congress believe that every company that uses unethical sales practices to hit sales targets is acting outside the law? I’m not supporting Wells Fargo’s practices, but if this is true we need to launch a serious investigation into mall kiosks. Those guys are way too aggressive and should probably be criminally prosecuted…or at least humiliated by politicians. 


More Wells Fargo, Sort of


I know, I know, I have been known to say that I don’t want to talk any more about Wells Fargo but it is getting harder to find news that isn’t related to this scandal. Or at least, it’s hard to find news that makes me want to write something…that isn’t related to this scandal. I mentioned before that the state of California was reevaluating its bond underwriting relationship with the bank. This is the financial equivalent of a kid taking their ball and going home because they don’t like the way the other kids treat them. It is within their rights to do it, and I don’t necessarily disagree with their choice. Well, this is like that same kid telling everyone that they have to change their sales practices in order to play with their ball…I guess. Los Angeles Councilman Paul Koretz is trying to pass legislation that would require banks working with his city to follow specific sales practices, laid out by him. The most interesting stipulation is that he wants them to ban sales goals and targets. Admittedly, this is what lead to the Wells Fargo scandal. I get it, at Gainplan we don’t incentivize any employee with commissions or weird sales trips or anything like that. We believe that financial advice should be driven by a fiduciary obligation (acting in the client’s best interest at all times). However, we are all highly trained, knowledgeable, certified financial professionals. Front line bank employees are usually…well, not that. In order to give honest, strategic, and unbiased advice one needs to learn a tremendous amount of information about finance, behavioral finance, and human psychology. Put differently, banks need to sell credit cards and checking accounts. In my tenure at JP Morgan Chase I worked with people that believed both were a scam. Yes, there are people working at banks that believe no one should use a bank for anything, ever. Left to their own devices, these people will do nothing to advance the objectives of the company. Ostensibly, all companies exist to sell something. Without sales goals the company has no real way to measure poor performance and therefore no reasonable argument to let someone go if all they want to do is sit in a cubicle all day and drink coffee. Think about it, what do those people at the bank do? The ones sitting in cubicles, not the tellers. They are there to sell bank clients more credit cards, mortgages, and accounts. If bank can’t make them do that a fair amount of them wouldn’t do it. Sure, people are creeped out when someone tries to “sell” them something, and reasonably so. This is especially true when it comes to their money. However, it is hard for me to imagine to world where companies don’t have sales goals. That’s a fun mental exercise, can you imagine another industry where the government made them get rid of sales goals? Like if you hired a realtor to sell your house and their attitude was, maybe someone will buy your house, maybe not, whatever. Or an auto dealership. You could go in and tell them what you are looking for in a car and some guy at a desk would say, “uh, just look around the lot and pick out a car. They’re all pretty good.” The inverse is fun too. Consider Wells Fargo’s sales practices but in another industry.  If you bought a new dishwasher but when they delivered it the guy tried to hide a second dishwasher in your back yard or something. That would be great. Or maybe when you went to the doctor they tried to perform extra, unnecessary medical procedures. Wait, that’s an actual thing. I guess this is a really long way of saying that the world of personal finance is changing and there will be unintended consequences if we don’t stop and think about how this whole thing works. 




There is no shortage of robots in investing. In fact, I’ve written about it hereherehere, and well like 4 other times.  All the buzz around robots and trading algorithms sometimes causes firms to market robots just because it sounds cool.  The Commodity Futures Trading Commission recently brought action against two individuals for falsely marketing a trading robot to consumers. According to the filing the defendants offered customers a robot that placed trades on their behalf. They claimed “your robot knows exactly what to do” and had a “90%+ success rate.” The investigation found that the robot didn’t have a success rate and had never actually used real money. In fact, the robot didn’t really work at all and customers generally lost money when using the robot. I guess I want to know more about the definitions here. I mean, possibly, the robot had a 90%+ success rate at placing trades. Like not good trades, but 90% of the time, when the robot tried to trade, it was successful. That’s hardly an advantage but conceivably accurate marketing. I also want to know more about “real money.” They probably mean that the robot was performing hypothetical trades with hypothetical money but to me, all money is hypothetical money. No financial institution has access to actual dollars equal to its deposit base of hypothetical dollars. I think that’s the primary lesson in “It’s a Wonderful Life.” George Baily told us, “your money isn’t here.” Maybe the robot tried to trade “real money” and took it’s hypothetical dollars to Wells Fargo to exchange for real dollars and every time it tried to get it’s real money it found that it had lost money to checking account and credit card fees? Let’s hope so.  That scenario is better than the alternative: 


Criminal #1: “Is the trading robot making money?” 

Criminal #2: “Well, no, not really. In fact the robot isn’t even really a functioning service, you could almost say that it doesn’t do anything.”

Criminal #1: “Well, then let’s sell it to people.”


But also, who would buy a robot that worked 90% of the time? This is my problem with self-driving cars. Would you buy a self-driving car that worked 90% of the time? People seem oddly ok with the idea that robots aren’t perfect and we should let them drive cars. 




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