In case you haven’t heard, Wells Fargo was recently caught cheating a large number of its customers out of large amount of their money.
Here are some of the problems with financial institutions like Wells Fargo. For the sake of brevity, I’ll skip the story of how we got to our current circumstance and focus on the current situation.
Financial services companies are too large. With many thousands of employees, it is impossible for top-level executives to know what is going on along the front lines — where customers are communicating with the company and important decisions are being made. While CEOs may claim that their employees are dealing honestly with customers, the truth is that they have no idea.
Financial services companies are too complex. The deregulation of banks, insurance companies and investment firms over the past 20 years has allowed what were separate lines of business to merge and overlap. These large financial services corporations are so complex that they are impossible to clearly and thoroughly understand. If the company’s employees don’t understand their business, then they can’t effectively manage it.
Financial services companies lack accountability. More specifically, it is almost impossible to find someone who will accept responsibility for dealing with customers. This isn’t surprising given the high rates of personnel changes and the way that customers are passed from one employee to another as they attempt to deal with the firm. Further, it’s a safe bet that no single individual is responsible for you, as a customer, and accountable for the outcomes that you either suffer or enjoy.
Financial services companies are publicly owned. While not all firms suffer from this problem, if you’re not dealing with a small, local firm, you are probably dealing with a public company. The problem with public ownership is that many, or even most, of the company’s owners are interested in maximizing the return on their investment. Public owners tend to have a short time horizon and don’t really care what the company does or how it does it, as long as their investment turns a profit.
These problems combine to create an environment that begs for the exploitation of customers for profit. The company’s employees want to maximize their compensation by maximizing revenue and profit. The company’s owners want to maximize the return on their investment by maximizing profit growth. So, the firm’s stakeholders are primarily interested in maximizing profit. This profit, it turns out, comes at the expense of the firm’s customers. The company’s win is your loss.
Regardless of what they say, bankers, insurance agents and stock brokers are your adversaries. This is particularly important for TSP investors. As a TSP investor, you have access to the best retirement investment vehicle you’ll find. The low cost, simplicity, efficiency and provision of the G Fund make it unbeatable. Unfortunately, financial services firms usually require that you hand your money over to them so that they can skim fees or commissions from your assets. They can only advance their interests if you compromise yours and move your money out of the TSP.