Wells Fargo Mulls Wealth Business Overhaul

Tom Burroughes

21 June 2018

Wells Fargo, the US banking group seeking to fight back after a series of regulatory woes, says no “final decision” has been made on how or whether to restructure its wealth management arm, following press reports that a major shake-up is imminent.

“As we have told our investors and our teams, our wealth and investment management group is reimagining our business to become more efficient while always keeping our primary focus on superior client service,” the bank said in a statement emailed to this news service.

The bank is planning to combine two large divisions within the business, known internally as Wealth Brokerage Services and the Private Client Group, the Wall Street Journal reported this week, citing unnamed sources. Both these entities are brokerages serving mass-affluent customers. The Private Client Group has about 9,500 brokers who work out of Wells Fargo’s brokerage offices, and Wealth Brokerage Services has around 3,400 brokers who work out of retail bank branches.

The story did not refer to the Abbot Downing part of Wells Fargo, which is the business catering to ultra high-net-worth clients. As far as this publication is able to judge, this part of the bank is unaffected.

The statement continued: “However, no final decisions have been made because that work continues. Whatever the outcome, we will continue to serve our clients across multiple channels — Community Bank branches, PCG branches, FiNet, Wealth hubs, online and by phone — because our clients expect that from Wells Fargo.”

The WSJ story said that California-headquartered Wells Fargo, one of the largest lenders in the US, may give more details on its strategy today when Jon Weiss, the head of Wells Fargo’s wealth and investment management unit, is due to host an internal 'town hall' meeting. As the report noted, Wells Fargo has around 14,400 advisors. The wealth and investment management unit brings in around 9 per cent of overall bank profits, or $714 million in the first quarter of 2018.

Wells Fargo has been trying to recover from a set of regulatory and compliance problems. In April this year, it agreed to pay $1 billion to settle claims with US authorities over deficiencies in its risk management. The authorities have been looking at its wealth management operation, having discovered that its sales staff had opened as many as 3.5 million accounts without clients' knowledge.

It remains to be seen exactly how far any changes will go. While the compliance issues have been costly, wealth management is – or ought to be - a useful source of steady revenue and, unlike investment banking, relatively low in its demands on capital.

The potential changes are also being mooted at a time when there is uncertainty over the pace of wealth advisors’ shift towards fee-based remuneration and away from commission-based earnings, given legal challenges to the Department of Labor Fiduciary Rule.