To lure you and your money, financial institutions offer up home
By Katy McLaughlin
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (July 26, 2019).
Banks increasingly want to be your everything: your mortgage
lender, your financial adviser and, of course, your banker.
To encourage deeper bonds, banks dangle "relationship pricing"
that offers borrowers lower rates in exchange for holding specific
sums in the bank. Special treatment for good customers is nothing
new, but today it's highly codified. On the Citibank web site, a
schedule explains that borrowers who deposit -- or already have --
$500,000 to a penny under $1 million at the bank get 3/8% off the
mortgage rate, for example. SunTrust Bank offers tiered rate
discounts, starting at 1/4 point off for a client with at least $1
million in either self-directed funds or managed assets at the
bank, said Sherry Graziano, head of mortgage transformation. In
May, PNC Bank rolled out relationship pricing for mortgage
borrowers who put funds in the bank's wealth management division,
said mortgage executive Peter Boomer.
But consumers should question a bank's motives: Is it worth it
to move investment accounts for a half-point discount? Are the
bank's fees and rates going to be competitive?
These questions are especially pertinent ever since Wells Fargo
paid $4 billion worth of fines and settlements between September
2016 and the end of 2018 to address accusations that it
incentivized employees to open millions of unwanted accounts for
unwitting customers. Tom Goyda, a spokesperson for Wells Fargo,
said of the scandal, "we are making significant progress in our
work to identify and fix any issues, make things right, and build a
better, stronger company."
Federal agencies are examining the bank's wealth management
division, according to a recent company filing, amid accusations by
former employees that employees were encouraged to route
investments into products that yielded high fees for the bank. Mr.
Goyda said, "the Board's review is substantially completed and has
not, to date, uncovered evidence of systemic or widespread issues
in these businesses."
Wells Fargo's troubles underscore the importance of examining
cross-selling offers carefully.
Sam Dogen, a former investment banker who runs the personal
finance blog Financial Samurai, is in the process of refinancing a
loan on his house in San Francisco. The large bank where he
currently holds a self-managed investment portfolio offered him a
3% rate on a 7/1 ARM, he said, but he wanted to do better. Figuring
Wells Fargo would be in the mood to regain customer trust and
loyalty, he called a "home mortgage consultant" (a.k.a. loan
officer) there and negotiated the following deal: He would move his
$1 million portfolio to Wells. In return, he'd get a 7/1 ARM rate
of 2.75% on his loan of $705,000.
Mr. Dogen, 42, said the rate difference combined with fee
waivers and a credit will add up to about $17,000 in savings over
the course of seven years. He calculated that moving his account
would take two to three hours of signing, faxing or emailing
paperwork, but will not incur any fees or taxes, he said. To him,
it's worth it.
"Home mortgage consultants do not receive any additional
compensation as a result of any transfers, and advisers in our
Wealth and Investment Management group don't get any incentives
specifically for the transfer of assets in these situations," said
Financial planners counsel examining offers, particularly before
putting assets into a big bank's wealth management division. Jirayr
Kembikian, co-founder of Citrine Capital, a financial planner in
San Francisco, suggested asking a potential adviser, "Are you
acting under a fiduciary standard of care on all of your
recommendations at all times?"
Another crucial question, he says: "How are you paid?" The goal
is to make sure a wealth manager is transparent about disclosing
any incentive to recommend a particular investment.
Another key question when moving managed assets: Will there be a
change of custodian and, if so, who will pay those fees? Custodians
-- financial institutions that hold securities -- may charge
between $75 and $150 per account for transfers, said Ben Lies of
Delphi Advisers in Vancouver, Wash. Some investments may need to be
liquidated in taxable accounts or may have surrender fees, Mr. Lies
said. If a bank wants your business badly enough, their wealth
adviser should be willing to look over your holdings and point out
assets that will be tricky to move.
Banks often require customers to hold large amounts of cash in
checking or savings accounts to benefit from relationship pricing,
said Mr. Kembikian. Only move large sums into these accounts if you
would hold that much cash anyway, such as to maintain a liquid
emergency fund, he counseled. Lower interest rates and inflation
eat away at those savings, he said.
Philip Blancato, president of Landenberg Thalman Asset
Management in New York, said crunching the numbers -- as Mr. Dogen
did -- is key before signing anything.
Relationship pricing can offer good deals for some high
net-worth clients, Mr. Blancato said. "But generally, I prefer
people go out and find the lender who is going to give you the best
-- Pricing can be flexible at some banks, so negotiate. Ms.
Graziano at SunTrust said that a loan officer recently realized
that a prospective mortgage client had lots of assets he might
bring over. The loan officer contacted the "dedicated internal
relationship team" and got the customer "a fabulous interest rate"
to close the deal.
-- Make sure to understand all fees. It does no good to get a
rate cut just to pay higher than necessary asset management or
monthly account fees. Make sure everything is clear before
-- Deposits can be temporary. Inga Chira, who runs Attainable
Wealth, a financial planning firm in Los Angeles, said this fall
her clients got a steep mortgage discount by pumping up their Chase
Bank accounts to $500,000. The loan officer told her the money only
needed to stay at the bank until the mortgage closed. Mr. Dogen
said Wells Fargo told him the same.
Write to Katy McLaughlin at firstname.lastname@example.org
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July 26, 2019 02:47 ET (06:47 GMT)
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