Wells Fargo’s Wealth Unit Loses More Client Assets, Advisors in First Quarter
Profit at Wells Fargo & Co.’s Wealth and Investment Management division plunged 19% in the first quarter from a year earlier, reflecting continuing withdrawal of client assets and more broker departures, the company said on Friday.
Net income of $577 million across the unit that includes Wells’ almost 14,000 retail brokers and its private bankers and asset managers was down 19% from the year-earlier period and off 16% from the last three months of 2018.
Total revenue in the division was off 4% from a year ago to $4.1 billion, as customers withdrew assets from all of the bank company’s wealth units.
The California-based banking giant’s overall profit of $5.9 billion was up 16% from a year ago, beating Wall Street analysts’ expectations. But wealth results reinforced concerns that reputational damage emanating from the bank’s aggressive sales and cross-marketing culture continue to disturb the company brokers and wealthy clients two-and-a-half years after Wells first disclosed fake-account openings at its retail bank branches.
Client assets fell in retail brokerage, wealth management (private banking) and asset management from a year earlier by 2% to $1.8 trillion, despite higher market valuations, driven primarily by net outflows, the company said.
Wells Fargo Advisors’ brokerage count across its private client group, in-bank and independent broker (Financial Network) offices fell during the quarter by a net 140 to 13,828, or 4% from the previous year and 1% from the last quarter of 2018. The brokerage division has been offering enhanced recruiting deals and premium payments to headhunters to bolster its declining ranks, but net advisor count is down by 1,258 since the bank company disclosed the fake account scandals.
Wells Fargo Advisors spokeswoman Shea Leordeanu said that advisor attrition peaked in last year’s second quarter and that recruiting in the first three months of 2019 was up 20% from the 2018 quarter. The level of advisors being hired also improved, with trailing 12-month production of recruits in the first quarter up 90% from those hired a year ago.
“Financial advisor productivity and growth, paired with best practices around high-impact advice and service for our clients, are more important to the WFA long-term business strategy than headcount,” Leordeanu wrote in an email.
Client assets in the brokerage business fell 1% from a year ago to $1.6 trillion, with drops in both asset-based fees and brokerage commissions, but were up 8% from the end of 2018, the bank company said.
Referrals from Wells’ retail bank to its wealth division, a cross-selling metric that former management boasted about, fell 8% from the first quarter of 2018 to $2.4 billion but were up 10% from the end of 2018. Average deposits that Wells’ wealth management clients kept at the bank during the first quarter were down 13.9% from a year earlier while average loans they held were up .01% to $74.4 billion, driven by jumbo mortgages. The wealth unit set aside $4 million as a loan-loss provision, after releasing money from the reserve in the year-earlier and linked quarters.
During an earnings conference call with analysts on Friday morning, Chief Financial Officer John Shrewsberry said executives have more work ahead of them to assure the public, as well as bank regulators who have limited Wells’ ability to grow assets.
“We…understand the seriousness of the work that needs to be done,” he said, “not only to meet, but exceed the expectations of regulators.”
Wells has replaced its last two chairmen and chief executives since the scandal broke, and has been selling assets. Earlier this week it announced an agreement to sell its retirement plan services business—which is part of its wealth and investment management division—to Principal Financial for $1.2 billion.
Wells shares fell 2.5% in mid-morning trading on Friday after Shrewsberry told analysts that the bank company expects its full-year net interest income to decline by 2% to 5% as a result of the Federal Reserve’s apparent easing policies and competitive deposit pricing.
The bank had previously given a range of -2% to +2% on the core interest revenue metric.