In 1998, at a technology conference in New York, John (Launny) Steffens, vice chairman of what was then Merrill Lynch & Company, told his audience, ”The do-it-yourself model of investing, centered on Internet trading, should be regarded as a serious threat to Americans’ financial lives.” It wasn’t until March of 1999 that he finally tried online trading himself. “It was easier for me to do it and more convenient,” he told the New York Times, acknowledging he could place orders whenever he wanted, even on weekends or when his broker wasn’t around. Three months later, Merrill announced it would offer online trading to its brokerage clients by the end of that year. By that time, online trading accounted for 37% of all retail trades and Merrill was playing catch-up as customer expectations rapidly shifted.
I thought of this bit of history when the Financial Times reports that Wells Fargo has banned participation in P2P lending by its employees, because, “. . . for-profit peer-to-peer lending is a competitive activity that poses a conflict of interest.” This ban is wonderful validation for the likes of Prosper and Lending Club, both of which are still tiny compared to the giant bank.
As it turns out, it’s not entirely clear what Wells was, in fact, banning. I reached out to Wells Fargo and was pleasantly surprised when they responded quickly to my inquiry. Per Wells Fargo, “. . . team members should not have an investment in for-profit, privately held businesses that compete with Wells Fargo or cause an actual or potential conflict of interest without prior approval, and the guidance to these specific team members was not to invest in peer to peer lending.”
Still, it leaves me wondering why the Wells Fargo-written memo the FT received says, “Going forward, please refrain from making any new P2P investments/loans,” and, “If possible, exit existing investments as soon as practical (without forcing a loss) or when the loans are paid off.”
In any case, my contention is that Wells Fargo should encourage its employees to use Lending Club and Prosper, not try to keep them away. They should also encourage their employees to get credit cards from Chase, apply for mortgages from BofA, use ATMs from Citi, and open Fidelity cash management accounts. In that way, Wells Fargo employees will see for themselves exactly how well their products and services stack up against the competition
Wells Fargo personnel should also sign up for Simple, Moven, and Personal Capital and bring the best ideas gleaned from these startups back to the home office. The company – and its products – would be stronger because the people at Wells would be able to make smarter, better-informed decisions. They’d see competitive threats coming with plenty of time to adapt or respond.
If only Launny Steffens had opened an E*Trade account when that firm first offered online trading, he wouldn’t be remembered for railing against a product he’d never tried.
See the FT article here: http://j.mp/1f3xdSV