Wells Fargo’s Consumer Bank Scandal Seeps into Broker Relationships
The troubles at Wells Fargo’s community banking division that led to a $185 million settlement and ongoing probes of the company’s sales and compensation culture appears to be spilling over to wealth managers at Wells Fargo Advisors.
At least some brokers and managers at the broker-dealer, which has more than 15,000 advisors in three channels, said clients have been asking questions about allegations that thousands of Wells staffers opened bank and credit card accounts without customers’ authorization to meet sales goals. Wells settled the charges without admitting or denying guilt.
“This is actually going to cost us business,” said a long-time manager of a Wells Fargo Advisors’ private client branch in the Southwest. “I’m hearing people say for the first time, ‘Oh my gosh, I thought you were different.’”
While no one has closed an account, he said he has received more queries from brokers and customers than at any time since the depths of the financial crisis.
To be sure, the manager is in a sensitive geographic area. About two-thirds of the more than 5,000 employees that Wells has disciplined for the unscrupulous activities were based in the Southwest, Wells Chief Financial Officer John Shrewsberry said Tuesday at a banking conference in New York sponsored by Barclays. (He also said that most were weak performers struggling to meet sales goals.)
Responses from brokers and sales assistants in other parts of the country were more equivocal.
“We’re getting some calls, and it’s a shame,” said one assistant in the Midwest. Another in the Mountain West said a few clients called in the 48 hours after the settlement was announced, but she followed talking points that the bank had sent employees which noted that the issues were not occurring “in the investment area.”
A veteran broker in the West said his office was surprised at the lack of reaction from his upper-net-worth and quasi-institutional clients, although his staff had been prepared to lay blame for the issues on dumb people who have been fired for their actions.
In his discussion at the New York banking conference, Shrewsberry said customer backlash has been surprisingly mild despite the reserves of employees Wells had deployed to monitor complaint lines. The executive was not asked to address issues and reactions in areas outside of Wells’ consumer bank, although the San Francisco-based company has long flaunted its success at cross-marketing products between its bank, investment and asset management businesses.
Wells, however, announced Tuesday that beginning Jan 1, 2017 it is eliminating all product sales goals in retail banking. The announcement does not affect sales goals and incentives in other areas of the bank, a company spokesman said.
The Wealth and Investment Management division that includes Wells Fargo Advisors has historically been more successful than other units in cross-marketing, according to statistics that the bank had published in previous years. In reporting its first-quarter 2015 results, Wells said that wealth sector clients used 10.44 products or services per household, the most of its three businesses.
Most of the problems addressed in last week’s settlement with the Consumer Financial Protection Bureau, the Treasury Department and the City and County of Los Angeles occurred in 2013, Shrewsberry said.
In the first four months of that year, assets referred to brokers and private bankers from the branch system soared 25% from a year earlier, an amount totaling billions of dollars, according to David Carroll, head of the Wealth and Investment Management division. In 2014, he said he was raising pressure among brokers and private bankers to refer their clients to one another to increase sales of loans and mortgages.
About 10% of the $1.2 billion that Carroll’s division generated in 2011 and 2012 came from internal referrals at Wells Fargo, the bank has said.