Wells Advisors Headcount Holds Steady and Bank Referrals Rebound
Wells Fargo & Co. signaled on Friday that the exodus of brokers from its wealth management businesses in the wake of last year’s bank-account scandal has ebbed.
Wells Fargo Advisors, which includes financial advisors at its branch brokerage system, its bank branches and its Financial Network independent contractor unit, ended 2017 with 14,564 advisors, flat with the total the end of the third quarter. It was the second straight quarter of stability following a net loss of 350 brokers in the first half of the year.
Brokers and headhunters have said that brokers were fleeing in large part over customer skepticism about the bank following Wells’ disclosure in September 2016 that it would pay $185 million to settle charges that employees opened thousands of fake bank and credit card accounts to meet management sales goals.
Wells Advisors’ broker headcount is still down 2% from 14,882 as of the end of 2016. But the company has continued recruiting, keeping its pay packages for experienced advisors stable at a time when its wirehouse rivals have been pulling back. Wells also remains in the Protocol for Broker Recruiting, which makes it easier to hire advisors from other signatory firms, despite the decisions of Morgan Stanley and UBS Financial Services to leave the pact.
A spokeswoman at Wells Advisors said earlier this week that the company continues to weigh the pros and cons of remaining in the Protocol.
In another sign that the scandal may be receding at Wells’ wealth units, advisors picked up the pace of referrals to and from other parts of the bank during the quarter, a key pre-scandal metric encouraged by bank management. “Average closed referred investment assets” at the Wealth and Investment Management division that includes Wells Fargo Advisors reached $829 million in the fourth quarter, up 12% from the comparable 2016 quarter, the bank company said.
Overall, the Wealth and Investment Management division that also includes Wells’s asset management businesses reported a 5.6% jump in revenue to $4.3 billion from $4.1 billion in the fourth quarter of 2016. It generated net income of $659 billion, up 1% from $653 million a year ago as a result of both higher fee-based revenue and net interest income growth.
Wells Fargo Advisors ended 2017 with $532 billion of client money in fee-based accounts, a 17% jump from 12 months earlier.
Fee accounts, which Wells and other broker-dealers have been encouraging brokers to open to replace more volatile commission accounts, comprised 32% of customer assets at Wells Fargo Advisors as of yearend, lower than at many of its competitors. Advisory accounts at Morgan Stanley, for example, represented 43% of its wealth unit’s total revenue in the third quarter. (Morgan Stanley will report its fourth-quarter results on Wednesday.)
Client assets overall at Wells Advisors rose 11% from a year ago to $1.7 trillion, reflecting in large part higher market valuations, the company said.
Rising interest rates drove net interest income at the brokerage unit up 7% to $1.133 billion on the back of a 4% jump in loan balances from a year earlier to $72.8 billion.
Overall earnings for Wells Fargo & Co. of $6.2 billion met analyst expectations, and were up from $5.3 billion a year ago. The company’s shares, nevertheless, dropped on the report as investors worried about lingering litigation costs. The bank took a $3.25 billion charge in the quarter for “mortgage-related regulatory investigations, sales practices, and other consumer-related matters,” following a $1 billion similar hit in the third quarter of 2017.
Wells offset the legal charge with a one-time $3.35 billion credit for re-figured tax liabilities in its community bank division due to the new tax law tax. Other companies, including Raymond James Financial, Morgan Stanley, and Stifel Financial, have said that revaluations of tax assets and other accelerated expenses related to the new tax law will mute their fourth-quarter earnings.