Wells Fargo's wealth management business is facing a fresh investigation into whether clients were sold inappropriate investments and steered into high-cost advisory accounts.

On Thursday, Massachusetts Secretary of the Commonwealth William Galvin announced that he has opened a probe into Wells Fargo Advisors on the heels of federal scrutiny of the firm's sales practices and advisor conduct.

For more than 18 months, Wells Fargo has been embroiled in scandal following revelations that the bank had opened millions of fee-bearing bank accounts in clients' names without their knowledge.

Galvin drew a direct line from that activity to his current investigation.

"Wells Fargo's recent banking scandal, which involved opening bogus accounts for their customers, leads me to believe that where there is smoke, there’s fire," Galvin says.

Galvin says his office will explore whether Wells Fargo Advisors moved clients from the brokerage wing of the practice into higher-cost managed and advisory accounts, as well as whether advisors made unsuitable product and retirement planning recommendations. He also highlighted the issue of 401(k) rollovers as one warranting close examination in the context of "the retirement savings crisis" and the Department of Labor's fiduciary rule.

Massachusetts Secretary of the Commonwealth William F. Galvin has questioned the ability of robos to carry out their fiduciary obligations. (Bloomberg News)
"Wells Fargo's recent banking scandal, which involved opening bogus accounts for their customers, leads me to believe that where there is smoke, there’s fire," says Massachusetts Secretary of the Commonwealth William Galvin.

"I am aware that there has been a recent trend in the industry to push investors into wealth management accounts which may bring more revenues to the firm, but which are not suitable for all investors," Galvin says in a statement.

That practice, or reverse churning, has emerged as a focal point of the SEC's oversight of the industry — particularly among firms where employees wear the dual hats of investment advisor and broker.

In a recent regulatory filing, Wells Fargo acknowledged it has come under scrutiny from federal authorities involving its sales practices and account placement.

"Our top priority is to rebuild trust with all of our stakeholders," a spokesman for the firm said.

"The disclosures in the 10-K filing reflect 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 company says. "We are making significant progress in our work to identify and fix any issues, make things right, and build a better, stronger company."

The Justice Department has reportedly been looking into the conduct of Wells Fargo Advisors. The spokesman declined to comment.

Following these government inquiries, Wells Fargo acknowledged that its board "is assessing whether there have been inappropriate referrals or recommendations, including with respect to rollovers for 401(k) plan participants, certain alternative investments, or referrals of brokerage customers to the company's investment and fiduciary services business" in its 10K form.

"The review is in its preliminary stages," the wirehouse said.