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Brokers' cross-selling: What is it, and why is it concerning?

As long as there have been banks and related purveyors of financial services, there have been consumers who have been taken advantage of.

That is a general statement, of course, but it is also a well-backed assertion grounded in the reality of caveat emptor, the rise of American regulatory agencies to police the financial and securities industry, and the steady stream of both victimized customers and apprehended wrongdoers.

Wells Fargo comes readily to mind, doesn't it?

We'll just briefly reference that entity en route to a focus on a related though different topic. Readers can peruse the WF tale in some detail in our September 13 blog post, noting the contours of what one prominent legislative critic termed a "staggering fraud."

That scam centrally entailed what is commonly termed "cross-selling," i.e., the practice of a financial entity to aggressively market a panoply of products to a consumer. Are you taking out a mortgage? Perhaps you'd like to combine that with a low-interest credit card and a life insurance policy. Trying to secure a home equity line of credit? Maybe you'll be interested in linking that with investment opportunities and the chance to work with a financial adviser.

Such tactics -- what one recent media report calls "incentives to sell additional features" -- are now under a regulatory spotlight, with investigators from the federal Financial Industry Regulatory Authority recently issuing an order to broker-dealers across the country to provide detailed information regarding their cross-selling activities.

Finra is focused upon abuse. Are the offerings appropriate and in consumers' best interests? Are they unsuitably priced? Are employees being fired for not pushing multiple products on customers? To what extent are promotions directly tied to high sales numbers?

Finra also wants to know whether financial firms "are adequately supervising these activities by their registered employees to protect investors." The agency has set a November 30 deadline for data submission.

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