What Is a Cross-Sell?

To cross-sell is to sell related or complementary products to an existing customer. Cross-selling is one of the most effective methods of marketing. In the financial services industry, examples of cross-selling include selling different types of investments or products to investors or tax preparation services to retirement planning clients. For instance, if a bank client has a mortgage, its sales team may try to cross-sell her a personal line of credit or a savings product like a CD.

How Cross-Selling Works

Cross-selling products and services to existing clients is one of the primary methods of generating new revenue for many businesses, including financial advisors. This is perhaps one of the easiest ways to grow their business, as they have already established a relationship with the client and are familiar with their needs and objectives.

However, advisors need to be careful when they use this strategy—a money manager who cross-sells a mutual fund that invests in a different sector can be a good way for the client to diversify their portfolio. But an advisor who tries to sell a client a mortgage or other product that is outside the advisor’s scope of knowledge can lead to problems in many cases.

If done efficiently, cross-selling can translate into significant profits for stockbrokers, insurance agents, and financial planners. Licensed income tax preparers can offer insurance and investment products to their tax clients, and this is among the easiest of all sales to make. Effective cross-selling is a good business practice and is a useful financial planning strategy, as well. Often, up-selling is confused with cross-selling. Up-selling is the act of selling a more comprehensive or higher-end version of the current product. Cross-selling is the act of selling a different product than what exists to provide an additional benefit to the customer.

Advisors who cross-sell financial products or services need to be thoroughly familiar with the products that they are selling. A stockbroker who primarily sells mutual funds will need substantial additional training if he or she is assigned to start selling mortgages to clients.

A simple referral to another department that actually sells and processes the mortgage may lead to situations where referrals are made whether they are needed or not, as the broker may not understand when the client really needs this service but is only motivated to earn a referral fee.

Advisors need to know how and when the additional product or service fits into their client’s financial picture so that they can make a more effective referral and stay compliant with suitability standards. FINRA may use the information that it collects from its inquiry to develop and implement a new set of rules that govern how cross-selling can be done.

Key Takeaways

  • Cross-selling is the practice of marketing additional products to existing customers, often practiced in the financial services industry.
  • Financial advisors can often earn additional revenue by cross-selling additional products and services to their existing client base.
  • Care needs to be taken to do this correctly in order to stay clear of regulators and protect the client’s best interests. Advisors who simply make referrals in order to receive additional incentives may find themselves on the receiving end of customer complaints and disciplinary action.

Special Considerations

The Emergence of Cross-Selling in Financial Services

Until the 1980s, the financial services industry was easy to navigate, with banks offering savings accounts, brokerage firms selling stocks and bonds, credit card companies pitching credit cards, and life insurance companies selling life insurance. That changed when Prudential Insurance Company, the most prominent insurance company in the world at that time, acquired a medium-sized stock brokerage firm call Bache Group, Inc.

Prudential’s purpose was to create cross-selling opportunities for its life insurance agents and Bache’s stockbrokers. It was the first significant effort at creating broad service offerings for financial services. Subsequently, other big mergers followed, such as Sears Roebuck (credit cards) and Dean Witter (stocks, bonds, and money market funds), and American Express Company (credit cards) and Shearson Loeb Rhoades (stocks and bonds).

The mergers of Wells Fargo & Co. with Wachovia Securities and Bank of America with Merrill Lynch Wealth Management occurred at a time of declining profits for both banks. The acquisitions held the intent of achieving greater scale in the sale of their banking products. To a large extent, they were aiming to expand their retail distribution arms by buying large and established distribution channels. Both banks placed a heavy emphasis on cross-selling as a strategy to regain profitability.

With few exceptions, cross-selling failed to catch on within many of the merged companies. Conflicting sales cultures and resentment among sales representatives, forced to sell outside their area of expertise, have been challenging obstacles to overcome. As an example, Bank of America lost Merrill Lynch brokers through the insistence that the brokers cross-sell bank products to their investment clients. Wells Fargo is more effective instituting cross-selling because its merger brought together two similar cultures.

Cautions for Cross-Selling

It can be difficult for large firms to effectively integrate the use and sale of different types of financial products to the same client so that their needs are properly met in each area. H&R Block Inc. failed in this proposition when it acquired Olde Discount Broker in a push to offer investment services to its tax customers. The addition of a mortgage branch complicated things even further, and the company ultimately decided to jettison these two divisions and focus solely on taxes once again.

In 2016, Wells Fargo was hit with a $185 million fine for opening bank and credit card accounts for thousands of customers without their knowledge or consent. FINRA has thus stepped in to monitor this issue, with a spokeswoman recently making the statement that: “In light of recent issues related to cross-selling, FINRA is focused on the nature and scope of broker-dealers’ cross-selling activities and whether they are adequately supervising these activities by their registered employees to protect investors.” Firms must respond to FINRA’s inquiry by November 15 of this year.