Latest Wells Fargo scandal threatens recruiting efforts
Wells Fargo's latest woes may leave some asking, what advisor will join them now?
The bank disclosed new federal scrutiny regarding possible sales misconduct within Wells Fargo's wealth management unit. The latest in a series of revelations could hobble the firm’s efforts to stem financial advisor attrition and recruit new talent.
In recent quarters, the firm has been hemorrhaging talent amid mounting regulatory scrutiny. Advisor headcount fell by more than 300 year-over-year to 14,544 for the fourth quarter. And some industry recruiters say that could be just the beginning.
"I don't know what advisor or group could make the decision today that Wells Fargo is the place to move their practice and explain that to their clients," says Frank LaRosa, CEO of Elite Consulting Partners, a recruiting firm.
Wells Fargo recently disclosed that it was reviewing investment recommendations within its Wealth and Investment Management unit, including "rollovers for 401(k) plan participants, certain alternative investments, or referrals of brokerage customers to the company’s investment and fiduciary services business," according to a regulatory filing.
The Department of Justice told Wells Fargo to conduct an independent investigation of its sales practices after whistleblowers filed complaints of alleged misconduct, The Wall Street Journal reported.
Wells Fargo has already been plagued by other scandals, including accusations that the bank opened accounts in clients' names without their consent. The company paid $185 million regulatory penalty to resolve the matter.
Unlike competitors UBS and Morgan Stanley, Wells Fargo has chosen to remain part of the Broker Protocol, an industrywide accord that permits advisors switching employers to take basic client contact information with them.
The firm has picked up some advisors, particularly its independent broker-dealer unit. But it's also been losing advisors to smaller regional brokerages and independent firms. Some departing brokers have cited the greater flexibility that smaller firms offer.
"We were getting buried in the bureaucracy of being in a big bank," Sarah Marks told Financial Planning. She and two other former Wells Fargo advisors left to join Steward Partners, an independent firm affiliated with Raymond James. Collectively, they oversaw $230 million in client assets.
‘The firm gives advisors the ability to choose who they do business with and doesn’t put limitations on minimum account size,’ one advisor says.February 28
The Raymond James affiliated firm has been aggressively recruiting from wirehouses in recent months.February 21
A Wells Fargo spokeswoman declined to comment on recruiting efforts, though the bank has previously stated that its recent regulatory disclosure reflects "our continued commitment to transparency, even when all of the information or the final outcome of a matter may not be known just yet."
The bank said it was making significant progress in identify and fixing any issues.
“If you’re working there right now, the impact of this will be minimal to zero,” recruiter Bill Willis says, who counts Wells Fargo as one of his clients. “What would I say to my clients? Nobody is better supervised than us because everything at our firm is being looked at with a fine-tooth comb.”
Complaints lodged against the bank with the Consumer Financial Protection Bureau last year dropped approximately 18% from the same period of 2016, the steepest decline among major banks, federal figures show. Still, it remained first among that group in total complaints.
As for losing more advisors, those that wanted to jump ship have already left, Willis says. “All that’s gone offshore has already gone offshore.”
The significance of the fallout may also depend on geography, says Elizabeth McCourt, a recruiter and coach. While the firm’s reputation may suffer overall, clients at trusted local branches may be less likely to leave the bank. "Each office will have a different reputation in different parts of the country," she says.
The timing alone might be a blessing since recruiting overall has been slow, Willis says. “If you’re going to have a bad moment, they couldn’t have picked a better time.”
Lucrative recruiting deals may also counter downward trends in hiring, says recruiter Mickey Wasserman.
“This is a mercenary business, for the right dollars involved it will attract brokers," he says.
However, there's a risk that clients may move their accounts even if their advisors don't make a move themselves, according to some recruiters.
“All the negative press over the past 18 months has advisors very concerned about keeping their clients,” says Michael Terrana, CEO of the recruiting firm Terrana Group.
Advisors, he says, are “fed up.”
The firm may need to avoid actions, such as quitting the protocol, that might upset the rank-and-file. "If they shook up advisor ranks now, there would really be attrition,” he says.
LaRosa says that when he was an advisor with Prudential in the early 1990s, he lost prospective clients who were turned off by regulatory problems the firm had.
"They liked me, but were put off by the firm," he says. "So if I'm an advisor at Wells Fargo right now, I have to ask myself is this the firm I want to tie my future to?"