Wells Fargo’s Q4 Wealth Profit Fell 63%, Broker Count Slides
(Updates with additional details in last two paragraphs.)
Net income at Wells Fargo & Co.’s wealth and investment management division fell 63% in the fourth quarter from the year-earlier period on higher expenses, lower interest revenue and a continuing decline in broker headcount that included a net loss of 211 brokers in the quarter.
The wealth division, the smallest of Wells Fargo’s three business units, earned $254 million in the quarter, down from $689 million a year ago, as expenses grew 23% on higher operating losses, higher deferred compensation plan expenses and increased technology costs, the company said.
Total revenue in the wealth unit, which includes the bank’s Wells Fargo Advisors brokerage businesses as well as its smaller private bank and asset management businesses, inched up to $4.1 billion from $4.0 billion in the fourth quarter of 2018. But Wells said higher retail brokerage advisory fees were partially offset by lower net interest income and by client outflows in the company’s correspondent clearing unit called First Clearing.
Well’s reputational problems have centered on fake retail bank, credit card and car insurance sales by employees seeking to meet quotas and bonus goals, but the scandals seeped into wealth management. More than 1,500 advisors net have left Wells since the fake account scandals were disclosed in September 2016.
Headcount continued to slide in the fourth quarter. The 13,512 brokers at yearend who work at freestanding Wells Fargo Advisors offices, in bank branches and as independent contractors in its Financial Network (FiNet) were down by 456 from Dec. 31, 2018. The declines occurred despite signing bonus packages and premium fees for headhunters that Wells continues to dangle.
2019 was Wells’ strongest recruiting year since 2016, as measured by numbers and the size of advisors’ books, said Wells spokeswoman Shea Leordeanu. Newly recruited brokers had average production of $719,000 compared to $565,000 in 2018, and the elevated number of departures largely reflected older brokers who are retiring and others who are simply leaving wealth management.
“Our new hires for the year had 40% more in T-12 than we had anticipated,” Leordeanu said in a statement. “We are optimistic about our recruiting prospects for 2020.”
Wells did not break out the success level of recruits in bringing client assets to their new home, but assets in retail brokerage rose 11% to $1.6 trillion as of December 31 from 12 months earlier. Wells attributed the growth primarily to higher market valuations, noting that the gains were partially offset by the outflows in the clearing business.
Wells Fargo & Co. overall reported fourth-quarter profit that missed analysts’ expectations, falling 53% to $2.9 billion from a year earlier on lower net interest interest income and high legal costs.
Scharf, a BNY Mellon and J.P. Morgan Chase veteran who took the Wells reins in October, said that in addition to dealing with “a sense of urgency” on regulatory issues, he is focusing on operating more efficiently.
“Our cost structure is too high, and I believe there are many areas where we will be able to increase our rate of growth,” he said in a prepared statement. “While it is too early to put time frames around these goals, we will be diligent in pursuing them and I am confident the opportunities are meaningful.”
Scharf gave a nod on the earnings call to wealth and investment management division head Jonathan Weiss who he said has “substantially reconstituted the leadership in wealth and investment management.” Weiss in August 2018 melded the bank-branch based brokers into Wells Fargo Advisors private client group and has continued to streamline field leadership.
The company also touted improving results in cross-marketing between the wealth division and consumer bank. Wells Fargo bankers referred $2.6 billion in client investment assets to the wealth unit in the quarter, flat with last quarter but up 18% year-over-year.
Shares of Wells closed down 5.4%, or $2.79, to $49.32 on Tuesday.