Wells Fargo Advisors’ Brokerage Count, Client Assets Fall
Broker attrition and falling markets shadowed Wells Fargo Advisors during the fourth quarter, as its net broker count fell by more than 100 over the last three months of 2018 and client assets plummeted by $100 million.
Wells Advisors ended 2018 with 13,968 retail brokers, its parent company said in reporting earnings on Tuesday, 576 fewer than 12 months earlier and off by 106 from the end of the third quarter.
Client assets held at the firm’s three brokerage channels fell by 10% from a year earlier and by 9% from the end of the third quarter to $1.7 trillion, the company said.
Wells Fargo Advisors has lost 914 retail brokers net since the end of 2016. Brokers have been leaving since the parent bank company began disclosing investigations of fake bank accounts and loans its employees had set up as they strove to meet production quotas.
The brokerage unit has been incentivizing headhunters with a higher fee for successful recruiting by paying recruiters 10% of the revenue produced in the previous 12 months by successfully placed brokers. Wells Fargo Advisors recently extended the offer that was scheduled to have expired at the end of 2018.
Total advisor attrition in the fourth quarter represented .75% of the advisor force, the lowest exit numbers of 2018, said Kim Yurkovich a spokeswoman at Wells Fargo Advisors. She also repeated the company’s previous assertions that advisors being hired are stronger producers than those leaving.
“The average productivity of the advisors who left this year was only about half that of our current average FA,” Yurkovich wrote in an e-mail. “The average production of the FAs we hired in Q4 was the highest it’s been in two years.”
Customer money in fee-based advisory accounts, which Wells and its rivals have been promoting, was off 11% at the end of the year from three months earlier, and down 8% from last year’s fourth quarter, at $501 billion. Total client assets of $1.5 trillion at yearend 2018 was down 10% from the end of 2017 and 9% from the end of the third quarter. Plummeting U.S. stocks have battered fee-based revenue at many wealth management firms, but since Wells priced its brokerage advisory accounts at the beginning of the quarter—reflecting Sept. 30 market valuations—first-quarter 2019 fees are likely to reflect the market decline.
Wells does not break out revenue and net income for its brokerage unit, but indicated that revenue dropped broadly across its wealth and investment management division that includes Wells Advisors, its private bank, its retirement and asset management businesses and its Abbot Downing family office.
Revenue decreased 9%, or $376 million, from the fourth quarter of 2017 on lower brokerage transaction commissions, lower net interest income and the lower asset-based fees.
Much of the revenue decline reflected lower returns from investments for the unit’s deferred compensation plans, Wells said. In a sign of its reduced sales force and compensation numbers, the drop in investment results for the deferred plan was offset by lower employee benefit expense, Wells said.
Net income in the wealth division, the smallest of Wells’ three principal business units, fell 6%, from the third quarter of 2018 but was up 2% from the 2017 fourth quarter, primarily because of lower tax rates, the company said.
Assets in individual retirement accounts at year-end were $373 billion, down 9% from the the end of 2017, while institutional retirement plan assets fell 8% to $364 billion. Retail brokerage assets of $1.5 trillion were also down 10% from a year earlier and advisory assets—which had been growing—were down 8% to $501 billion. Wells attributed the client asset declines in advisory and brokerage accounts to “net outflows” as well as to lower market valuations.
Referrals between Wells’ wealth management and retail bank divisions, long a hallmark of the bank’s cross-marketing culture, fell 2% to $10.1 billion for all of 2018 from 2017.
Client deposit balances in the wealth and investment management unit fell by 16% from a year earlier to $155.5 billion, but average loans for the fourth quarter of last year were 3% higher at $75.2 billion. Wells attributed the loan-balance increased to growth in large mortgage loans among wealth and investment management customers.
Net income at the bank company as a whole fell 1% to $6.06 billion in the fourth quarter from the 2017 fourth quarter, but was up 1% for the year. Wells’ earnings per common share was up 4% to $1.22 from $1.17 during the quarter.