Wells Fargo Advisors Bleeds More Brokers
(Updated with closing stock price in last paragraph.)
After a brief respite at the end of 2017, Wells Fargo & Co. suffered a decline in brokers and brokerage customer assets in the first three months of this year.
Wells Fargo Advisors, the scandal-plagued bank company’s retail brokerage business, lost a net 155 advisors in the first quarter of 2018, down 1% from three months earlier to 14,399 brokers. Compared with March 31, 2017, headcount fell 2%, the company said in its first-quarter preliminary earnings report on Friday morning.
The brokerage unit of Wells was not implicated in the fake checking account and credit card scandals embroiling the company’s major consumer banking business, but Wells recently disclosed that regulators and federal investigators are looking into sales practices involving 401(k) rollovers, recommendations of certain alternative investments and cross-selling at its Wealth and Investment Management division.
Wells lost a net 350 brokers in the first half of 2017 amid continuing headlines about the scandal, but said attrition had leveled off in the year’s fourth quarter.
Friday’s report, which also said that client assets in retail brokerage fell by 2% to $1.6 trillion during the first three months of 2018, underscores recent efforts at Wells Fargo Advisors to jump-start its hiring and retention engines. The company earlier this month offered third-party headhunters a fattened fee for recruits who join any of the brokerage channels by the end of September.
In a conference call with analysts, Wells Chief Executive Timothy Sloan said that despite “anecdotal comments” he hears about advisors and other employees leaving, the company’s retail brokerage and banking businesses are attracting “really high-quality folks, not only in entry-level positions but in senior leadership positions.”
Recruiting of “experienced” advisors is up, along with a 7% year-over-year rise in average per-broker productivity, he asserted. And while total client assets in the wealth division that also includes Wells’ trust, private banking and retirement businesses were down 2% to $1.9 trillion as of March 31, they rose 4% from 12 months earlier, executives said.
Jon Weiss, the head of the division, last week denied reports that brokers were incentivized to take business-growth risks akin to those at the consumer bank.
Asked in the conference call with analysts about new investigations at wealth management, Sloan said the San Francisco-based bank has been weeding out sales-practice problems “in every nook and cranny of the company” but is not yet ready to declare victory.
“We’ve got some challenges that we’re dealing with right now,” he said.
Wells Fargo Advisors, meanwhile, has taken other moves besides incentivizing headhunters to bolster broker retention and recruiting.
It remains in the Protocol for Broker Recruiting, which gives brokers more confidence about their ability to leave the firm without fear of being sued for contacting former customers, despite decisions by rivals Morgan Stanley and UBS Wealth Management Americas to leave the pact. The decision is aimed at reassuring existing brokers and prospects about their autonomy in operating their practices, recruiters have said.
“Attracting the industry’s top talent will always be a priority for Wells Fargo Advisors,” a spokeswoman for the unit said in an e-mailed statement. “We are seeing strong revenue growth and feel good about our pipeline of experienced recruits and new trainees joining advisor teams.”
The net loss of 155 brokers in the first quarter represents a 1% decline, which is “statistically flat” and “consistent with demographic trends,” she wrote.
On the plus side of Wells Fargo Advisors’ earnings report was a 10% rise in fee-based advisory account assets during the first quarter from 12 months earlier to $540 billion. The metric was flat, however, with end-of-2017 levels, signaling that some customers may have followed departing brokers to their new practices.
Like its rivals, Wells has encouraged advisors to put clients into fee-based accounts rather than traditional commission-based brokerage accounts because advisory accounts generate revenue regardless of customers’ appetite for trading transactions.
Wells’ wealth and investment management division is the smallest of the company’s three business segments.
Wells Fargo overall reported a 5.5% gain in first-quarter profit, above analysts’ expectations. The company’s shares fell, however, on Wells’ disclosure that it is in talks to pay $1 billion to settle charges from the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency over auto insurance and home mortgage sales practices.
Due to the settlement talks, Wells executives underscored that the first-quarter results were provisional and may be restated.
Shares of Wells closed down 3.4%, or $1.81, to $50.89 on the New York Stock Exchange on Friday.