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Finra Targets Broker-Dealer Cross-Selling

By Alex Padalka October 28, 2016

Finra has launched an investigation into cross-selling at brokerage firms, following last month’s revelation that Wells Fargo’s retail banking unit took the practice too far, and regional press reports alleging similar conduct at its wealth management unit.

The industry’s self-regulator wants to know about incentives broker-dealer employees, including both registered advisors and non-registered staff, received for pushing banking products to their brokerage clients and for opening additional accounts, Finra says in an article on its website.

Broker-dealers have until Nov. 15 to respond in detail about the practice, including incentives for promoting banking products of the firm’s parent or affiliate company, adding features such as securities-based loans, and opening retail accounts, covering the period from the start of 2011 to Sept. 30 this year.

Finra expects member firms to disclose their cross-selling programs, how they were promoted to employees, a breakdown of monetary and non-monetary incentives for cross-selling, an explanation of how cross-selling performance affected performance ratings, promotions and terminations, and the companies’ supervision and compliance procedures around the practice.

In addition, the regulator wants to know whether firms fired any staff who didn’t meet production goals or for doing something improper to meet them.

Further, Finra requests lists of customers who had accounts opened or features added without authorization, and those who received compensation for improper cross-selling, as well as any complaints, lawsuits, arbitrations or disciplinary actions resulting from cross-selling.

Finally, the regulator wants to know how much broker-dealers made from cross-selling their affiliate or parent company’s products.

Wells Fargo was fined $190 million in September following revelations that thousands of its retail branch employees opened two million fake credit and deposit accounts without the customers’ knowledge, under a policy that encouraged employees to ensure each customer had eight accounts with the company.

Reports have surfaced in the press that the scandal has allegedly spread to the bank’s wealth management division, with former customers and employees of Wells Fargo Advisors telling the press that the unit engaged in similar practices. The company revealed earlier this month that cross-selling from its banking unit brought in $1 billion to the wealth-management business.

Former SEC executives, meanwhile, have already said that regulators should look into high-pressure sales tactics at brokerage firms.