Wells’ Broker Count Slipped in Q2, Client Assets Flat-Lined
(Updates with comments in fifth and sixth paragraphs from Wells spokeswoman on recruiting successes.)
Despite a continuing campaign to replenish its diminished advisor force through hiring incentives, Wells Fargo on Tuesday said it ended the second quarter with just under 13,800 brokers, down 427 from a year earlier and off 29 from three months earlier.Customer assets in fee-based accounts across Wells Fargo Advisors’ private client group, in-bank and independent (FiNet) channels rose 3% to $561 billion from both the year-earlier second quarter and this year’s first quarter, the California-based banking giant said in reporting corporate earnings that beat analysts’ expectations on robust consumer loan and deposit growth.
But the advisory account assets that Wells and other broker-dealers prefer to more volatile commission-based accounts rose primarily because of higher market valuations that were partially offset by net customer outflows, Wells said in its earnings announcement. Total client assets in retail brokerage of $1.6 billion were flat with the end of the second quarter of 2018, despite market gains.
Wells Fargo Advisors has been offering higher signing bonuses this year to experienced brokers and is paying outside headhunters premium fees for successful placements in an attempt to replace more than 1,300 brokers who exited since its parent company disclosed its retail bank sales scandal almost three years ago. Wells Fargo Advisors had 15,086 brokers at the end of September 2016 when headlines broke about fake checking and credit card accounts that bankers had created to meet sales quotas and qualify for incentives.
“Advisor headcount at WFA stabilized as we had our best recruiting quarter since 2016 in terms of both the number of hires and the associated production,” a Wells Fargo spokeswoman said.
“We anticipate continued productivity growth even if headcount continues to decline,” she added, noting that Wells is hiring advisors with larger books than in the past. Experienced brokers who have joined from competitors this year were producing 84% more than those hired in the comparable period of 2018, she said.
Attrition of advisors also has dropped, she added, while hiring “pipelines are robust.”
Wells has not been announcing individual hires, but in recent weeks at least five brokers in four states joined from Merrill Lynch and Morgan Stanley, AdvisorHub has reported.
Wells’ retail brokerage unit is part of the bank company’s wealth and investment management division, which has been reorganized in the wake of the scandal and which also includes its private banking, asset management and retirement businesses.
The division, the smallest of the company’s three major businesses (including community banking and wholesale banking), reported a 35% year-over-year jump in net income to $602 million largely due to a one-time $214 million charge it took in the second quarter of 2018 on sale of an asset manager, The Rock Creek Group.
Profit in the division was up 4% from this year’s first quarter to $602 million, the company said, largely due to lower personnel expenses and higher asset-based fees. Net interest income fell 6% from the first quarter, however, largely due to declining deposit balances and a 1% drop in client assets from 12 months earlier to $1.9 trillion.
Like other large banks with wealth management businesses, Wells has been encouraging its brokers to add loans and deposits to the menu of investment products they offer to wealthy clients. Average loan balances across the wealth and investment management unit were flat compared with a year ago, while average deposits were off by 14%, Wells reported.
The bank did not break out its specific retail brokerage lending and deposit metrics, but said its long-running campaign to refer wealthy retail banking customers to its wealth businesses yielded $2.7 billion of wealth assets in the second quarter, up 12% from this year’s first quarter. The referral totals were the highest quarterly amount in two years.
Customer money in Wells’ asset management business, which excludes assets held in brokerage and private banking advisory accounts, was flat from 12 months earlier at $495 billion. Higher market valuations and net inflows into money-market funds were offset by net outflows from more lucrative equity and fixed-income funds, Wells said, as well as by assets that had been in The Rock Creek Group.
IRA assets in the division’s retirement business rose 3% from a year earlier to $414 billion, while institutional retirement plan assets were flat at $388 billion. Wells earlier this month closed the previously announced sale of its institutional retirement and trust business.
Wells Fargo’s overall earnings jumped 19% to $6.2 billion in the second quarter. That translated to $1.30 per share—up from 98 cents in the second quarter of 2019. Analysts suveyed by FactSet had expected earnings per share of $1.17, the Associated Press reported.
On a conference call with analysts Tuesday morning, Wells executives said they expect expenses to rise more than previously forecast through the rest of the year to meet risk, control and compliance requirements. Shares of Wells, which had risen slightly after the earnings release, fell by about 1.6% during the call after disclosure of the higher expenses.
Allen Parker, Wells’ interim chief executive, also said during the call that the company’s board does not plan to give progress reports on its search for a permanent CEO. The arrival of a new CEO is critical to the company’s development of further expense efficiency plans, Chief Financial Officer John Shrewsberry said on the call.
In the aftermath of the checking, auto insurance and other fake account scandals stemming from Wells’ aggressive sales culture, former Wells Chairman and Chief Executive John Stumpf resigned in October 2016 after almost 35 years at Wells and predecessor banks. His successor as CEO, Tim Sloan, similarly stepped down at the end of March, and the bank announced that it was searching for an external candidate to replace him. Sloan had worked at Wells for 31 years.