Pinching Pennies, Finance Headscratchers, and the Wells Fargo Problem

I’ve had a few things building up in my inbox, so I wanted to pass them along this week.

First, this was an interesting article on some behavioral finance that I thought related to my mindfulness post from a couple weeks ago: How To Pinch Pennies in the Right Places.

“Another of Professor’s Azar’s papers summarizes the problem perfectly: ‘Do Consumers Make Too Much Effort to Save on Cheap Items and Too Little to Save on Expensive Items?’ The answer is, resoundingly, ‘Yes.’”

I’ve definitely noticed this in home buying—“what’s another $10,000 if I’m already taking on $300,000 in a mortgage?”, one thinks as they drive out of their way to the cheaper grocery store. Dollars are what matters—don’t get suckered in by percentages.

I was also sent this list and thought it worthwhile to pass along: 10 Personal Finance Headscratchers. Number seven was my favorite.

“Why do we build diversified portfolios—and then get surprised when all of our investments don’t go up at the same time?”

Finally, I’d be remiss if I didn’t touch on the latest Wells Fargo scandal.

On Thursday, Wells Fargo was fined $185 million by the Consumer Financial Protection Bureau and two other regulators for employees opening bank accounts and credit cards that were not authorized by customers, in order to meet sales goals. Approximately 5,300 employees were fired in connection to the issue.

Of course, the bigger problem with the Wall Street business model is that you are consulting with a salesperson. In theory, being a salesperson or getting paid on commission should not be disqualifying from offering good advice and indeed there are many honest and trustworthy professionals who do that. The issue to me is that most clients assume they are sitting across from a consultant when it’s really a salesperson—a wolf in sheep’s clothing—and the company is set up such that they aren’t working hard to make this clear to customers. When I walk into a car dealership, I know I’m talking to a salesman and because I know that I can put their recommendations in context.

If I thought the salesman was only there to help me make the best decision, however, I’d end up with a lot of extras that I didn’t need—those padded floormats probably would help with my arch support while driving, hmmm…..

At least in the case of Wells Fargo, it seems they’ve learned their lesson:

Moving forward, Stumpf still plans to embrace cross-selling and strong customer relations for the company. What will change are the tools utilized for product sales, he said.

Right. It was the tools! They just need to find different tools for opening fraudulent accounts and all will be well. Never change Wall Street, never change.