Remember, Wells Fargo lost almost 4,000 advisors over years due to the exact headline risk. If this headline is picked up heavily in the press it could have far reaching consequences for advisors’ practices. At the least, these types of headlines do not bode well for client perception. Particularly since Bank of America leadership has been heavily incentivizing Merrill advisors to integrate private banking products to their clients. Certainly, the firm is not recruiting advisors and the trend continues for advisors fleeing the bank due to the massive cultural shifts within. It took Wells Fargo a decade to resolve issues the issues Bank of America is facing, this included an entire change of management, and now Wells Fargo is actively recruiting new advisors. Currently there is no hint that Bank of America has any intention of changing the “above the law” course.
The recent court order imposing a $250 million fine on Bank of America for engaging in illegal practices such as charging insufficient funds fees, withholding credit card rewards, and opening fake accounts since 2012 bears a striking resemblance to the Wells Fargo scandal. Bank of America is undeniably a massive institution, ranking as the second largest bank in the US with $2.4 trillion in assets, $1.9 trillion in deposits, and serving 68 million people. This raises concerns about whether the bank is “too big to fail” or believes it can act with impunity, just like Wells Fargo. In light of the banking failures witnessed in 2023, it is evident that anything is possible.
For financial advisors working at Merrill Lynch, the implications of this situation are significant. When clients become aware of Bank of America’s unethical conduct, they begin to question their association with a firm that lacks a moral compass and seemingly considers itself above the law. This sentiment is reinforced by Bank of America’s multiple previous fines for illegal practices, including a $727 million penalty in 2014 for unlawful credit card practices, a $10 million fine in 2022 for unauthorized garnishments, and another $225 million in the same year for incorrect unemployment benefits. The current penalty requires Bank of America to pay $100 million to affected consumers, $90 million to the Consumer Financial Protection Bureau (CFPB), and $60 million to the Office of the Comptroller of the Currency.
Rohit Chopra, Director of the CFPB, emphasized the gravity of Bank of America’s transgressions, stating, “Bank of America wrongfully withheld credit card rewards, double-dipped on fees, and opened accounts without consent. These practices are illegal and undermine customer trust. The CFPB will put an end to such practices across the banking system and should limit the commonality of incentivized selling and disregard for statutory boundaries.” This prompts the question of whether any firm can operate with such impunity and be considered “too big to fail.”
Consumers were subjected to multiple $35 overdraft fees, credit card bonuses were not honored, and Bank of America employees even opened credit card accounts for clients without their knowledge, accessing credit reports without authorization. Can clients place their trust in a firm that engages in such actions? While advisors recognize the prestige and power associated with the Merrill Lynch brand, they also acknowledge that such practices tarnish its reputation and raise concerns of another Wells Fargo situation. Clients have high expectations, and Bank of America’s dubious practices hardly align with a sterling reputation. Moreover, the pressure exerted by Merrill Lynch on advisors to sell the firm’s wide range of products exacerbates these concerns.
Will Bank of America cease these practices as mandated? It appears unlikely, given its continued disregard for the law. Financial advisors must therefore consider whether they want to be associated with such misconduct and the implications it may have on their clients and prospective clients. They must also weigh the pressure imposed by the firm to sell its products. Ultimately, advisors need to reflect on the unsettling reality that, as evidenced by the recent bank failures, their practice could be adversely affected by the actions of the bank, as was witnessed with First Republic Bank. While wealth management is a profitable endeavor, questions abound regarding the banking sector’s profitability and practices.