Cross-selling comes in for attack. The best approach, in this publication's view, is maximum disclosure to clients about a practice that is not and should not be illegal and can even be part of the offering.

Cross-selling has come in for attack even if it doesn’t involve breaking any laws. A recent article about JP Morgan says the practice is questionable. 

Bloomberg has a feature article, entitled Private Banking Meets Cross-Selling for JPMorgan’s Wealthy Clients. “There, private bankers working with JP Morgan’s richest customers are encouraged to steer client assets into certain funds and instruments that generate rich fees for the bank, according to several former employees,” the article, dated Feb 1, said. (JP Morgan hasn’t given additional comments to this publication beyond what it told Bloomberg.) As JP Morgan told the news wire, it doesn’t pay bankers commissions; a spokesperson said that a reason clients choose this Wall Street-listed titan is because of the range of banking, lending and wealth advisory services, and clients expect to hear from the bank about it. 

The article goes on to refer to “seven people who worked in various roles across JP Morgan Private Bank in the last few years, three of them as recently as mid-2016”, who said they were less advisors than sales people. The article also quotes JP Morgan chief financial officer Marianne Lake as saying that in response to regulatory requests, an internal investigation of the bank’s sales practices had turned up what the article said were “sporadic problems”, which she did not identify, but no “systemic lapses”.

So what to make of all this? To some extent, cross-selling, if done openly and where the client understands it is happening, is hardly questionable as such. Indeed, when a person becomes a client of an all-service bank, obtaining access to investment banking, commercial banking and corporate advisory services, as well as wealth management, he or she would have to be naïve in the extreme not to think that such cross-selling goes on. In fact it can even be an explicit part of the overall offering. When this publication has spoken to a range of private banks that operate inside large groups, cross-selling is sometimes openly mentioned rather than something referred to as a sort of embarrassing secret. 

Of course banks cross-sell to make money. It may come as a stunning revelation to some (not all) journalists, but banks are not operated as charities. They are, of course, under commercial pressures, whether run by partners or publicly-listed firms with stockholders breathing down their necks. But cross-selling is not illegal nor necessarily wrong so long as the client has a clear ability to say no. It can certainly be the case that some high net worth individuals will prefer to bank with standalone institutions where there isn’t likely to be a cross-selling aspect of the business, and this avoidance of “product push” is also a reason, for example, for the rise of boutique wealth managers and family office-type structures of recent years. People are free to shop around for the type of bank/institution they are comfortable with.

Even so, with all of those points in mind, the idea of cross-selling, or indeed selling generally, is in danger of being given an unfairly bad name, and one fears the heavy hand of regulatory interference cannot be far away. The Bloomberg article correctly states that there is “nothing illegal about cross-selling”, and nor should there be. It may well be true that some employees will feel pressured to advance certain investments to clients even when they think alternatives are a better fit. In those cases, however, it is surely best left to the cut and thrust of the free market to sort this out and for bankers, if they feel ethically uneasy about the situation, to defect. And this correspondent knows of several bankers who have hit the exits because of their dislike of cross-selling pressure. 

There is no doubt that the issue of cross-selling, and of what is also called “product push”, is a sensitive point. In this day and age when the suitability of investments is watched closely by regulators, banks, like other wealth management players, cannot afford not to take clients’ interests seriously. The UK’s Retail Distribution Review regime on financial advice that came into action in 2013, and the US Department of Labor Fiduciary Rule, kicking in from the start of April this year in the US, are important drivers of change, although client dissatisfaction with service, worsened by the 2008 financial crash, will have been an important factor. 

As far as this publication is concerned, the sheer variety of wealth management business models is the best protection against any abuses that cross-selling might give rise to. If bankers and clients alike dislike the practice, then bankers can form independent advisory firms, or join them, and clients can also move. For some clients, however, the benefits of being looked after by a large institution, even with such activity, will outweigh potential downsides. Let’s leave such decisions to the marketplace and insist on the utmost transparency.