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Wells Fargo bank scandal is different in this one huge way

John Stumpf, former chairman, president and chief executive officer of Wells Fargo & Co.
Andrew Harrer | Bloomberg | Getty Images
John Stumpf, former chairman, president and chief executive officer of Wells Fargo & Co.

Scandals have been a part of Wall Street evolution for as long as I can remember.

There was Drexel and its junk bonds. There was Prudential and its limited partnerships. There was the conflicted analyst reports just after the tech bubble blew up in the year 2000. Many storied firms disappeared because of scandal, each going down in flames — Kidder Peabody, Salomon Brothers, and the list goes on. Each scandal was followed by new laws, rules and regulations. Let's call it the financial services warped form of creative destruction. It all culminated in the Great Recession parade of financial services CEOs getting grilled by Congress.

But the Wells Fargo scandal is different in one very important way — and especially in a way financial advisors should be thinking about it.

Unmasking the robbery

Wells Fargo broke the cardinal rule: It went directly after the mom-and-pop bank branch customer. Not that it is right to cheat anyone, but hey, the rest of Wall Street does have its standards.

We're not talking about some esoteric product like a credit default swap that was conjured up in a Wall Street tower, spreading toxic risk over thousands of supposedly sophisticated institutional investors.

Nor are we talking about giant financial institutions fighting over investment banking deals. We're talking about you, me, our spouse, parents, friends and kids directly being cheated by people we know inside our community, whose weapon of choice is common, everyday checking accounts and credit cards. How dare they!

I think most people still don't have a clear understanding of what went wrong when the housing bubble led to the Great Recession. But this time the scandal is easy to grasp, even if the scale of it — millions of accounts opened in the name of unwitting consumers — is breathtaking.

That's what's different about this scandal. And that's why the CEO and the entire board of Wells Fargo have to leave right now. We're talking about the people customers see every time they walk into a branch. It is sacrosanct that you don't go after the little guy who may be less financially sophisticated and often unaware that he is getting ripped off.

"This isn't a matter of gaining new clients from a competitor gone awry, it is a devastating blow to the last bastion of safety in financial services — that you're perfectly safe inside your neighborhood bank branch. The people who perpetrated this scandal didn't even need to wear masks to rob you."

Here's the thing you may not have thought about. My fellow financial services colleagues and I are also outraged over this. This isn't a matter of gaining new clients from a competitor gone awry, it is a devastating blow to the last bastion of safety in financial services — that you're perfectly safe inside your neighborhood bank branch.

The people who perpetrated this scandal didn't even need to wear masks to rob investor/clients. All they had to do was take advantage of those people's hard-earned trust. We all can relate to how terrible that is, which is why even Republicans and Democrats in the Senate were totally aligned in their grilling of Wells Fargo's CEO, John Stumpf.

Living in the New York City tri-state area, I can't help but meet lots of financial professionals, including some who work for Wells Fargo. These are decent and hardworking people, and it's tough to imagine how their days are impacted by this. They deserved better. We all do.

There's probably more blame to go around than meets the eye. Publicly traded companies are under enormous pressure to deliver short-term earnings growth. To help with this, employees and management were incentivized to open new accounts, even though it was clear that it didn't mean bank employees should go about it in the way they did.

Maybe it is because the employees didn't like their pay and figured that destroying their career was worth the extra few bucks they could have today. Maybe in a tough job environment, employees were afraid of underperforming management expectations, so they acted out of survival. That's why I chose to be a business owner and leave the public company racket behind. How could I ever do a good job for my clients with some manager breathing down my neck?

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It'll all play out in the coming months. More than 5,000 employees were fired, which to me sounds like a lot of people, even for a corporate giant like Wells Fargo. But if the CEO was unaware of what that many people were up to, then he isn't fulfilling his duties.

If he was aware of it and it is just surfacing now because of the $185 million fine, then that is even worse. Either way, if the bank is serious about rehabilitating its reputation, the CEO has to go. For the record, I think Stumpf will be out by next week. And as a financial advisor, I want him to go.

The CEO needs to go so the bank can become a leading example of what serving the public is all about. And Wells Fargo will have to do things for customers to get them to come back. But they will, eventually. And I'll bet you that in two years no one will be talking about this and Wells Fargo will have lost very little business — if Stumpf is shown the door.

For those of us in the business of earning our clients' trust every single day, which includes the entire financial services industry, we will all have to work 10 times harder going forward. People might not remember this scandal in a few years, but like my mother always said, "People may not remember what you said, but they'll always remember how you made them feel."

Consumers may forget about this particular incident in a few years, but they will never let go of the ill will they'll have for the entire industry.

Thanks, Stumpf.

By Mitch Goldberg, president of investing firm ClientFirst Strategy.

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