We Have Heard This Tune Before...

Dec 11, 2016
Ethics, Behavioral Finance, Investing, Current Events


Headline from last week’s Wall Street Journal: Merrill Brokers Get Ultimatum: Refer New Customers or Face A Pay Cut. Huh? Didn’t we just read about another financial services firm creating phony customer accounts because of cross-selling pressures (here and here)? The more things change, the more they stay the same.  Read through to the end for ideas on how to empower your students to not fall into this cross-selling trap of being pushed a product that may not be in their best interests.

More from the WSJ:

Merrill Lynch will require its brokers to make at least two client referrals to other parts of parent Bank of America Corp. next year to avoid a cut in pay, a move that comes as Wall Street brokerages try to drum up new business while avoiding the type of aggressive cross-selling tactics that shook Wells Fargo & Co.

At Merrill, brokers who fail to refer at least two customers in 2017 to other parts of Bank of America—including its online brokerage platform Merrill Edge, its retail bank and other units—will have 1% shaved from their take-home pay or deferred compensation, depending on how much they produce in fees and commissions, people with knowledge of the matter said. That is up from one referral this year.

By taking away their compensation, Merrill seems to be tapping into something called “loss aversion,” which I have written frequently about on the blog. This refers to the fact that we feel the pain of loss much more than the joy of gains and usually felt by investors as the stock market rises and falls.

So, what’s wrong with this cross-selling. Here’s the money quote from the article:

“Any cross-selling that is not done in the client’s best interest and whether the client actually needs the product, that’s when you cross that line,” Mr. Pirker said. “Firms can’t appear to be drumming up business for the sake of meeting targets.


How can we prepare our students for these cross-selling tactics?

  • It starts by asking one question of the broker/financial advisor: “How are you being paid?”
  • We have also developed this great role play, NGPF Role Play on Opening A Savings Account , in which students prep prior to visiting a bank branch to open an account. I have used this in class several times; one of the best lessons from this activity came from a student saying “I need some more time to review the paperwork,” when they felt uncomfortable or pressured to sign up for something. These few words empower young people to walk away in situations like this.

About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.