Wells Fargo’s Wealth Assets Declined in Third Quarter

October 15, 2019

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Net outflows of customer money from brokerage advisory accounts contributed to a decline in customer assets across Wells Fargo & Co.’s wealth and investment management division in the third quarter, despite stronger referrals of wealthy bank customers to advisors, the bank said on Tuesday.

Customer assets at Wells Fargo Advisors, which represents 76% of client holdings and deposits across Wells’ brokerage, private banking and asset management businesses, fell 1% from a year earlier to $1.6 trillion, despite higher market valuations.

The nation’s fourth largest bank company, which has been under regulatory and consumer scrutiny since it disclosed fake accounts at its retail bank three years ago, also has been losing brokers. Wells Fargo Advisors as of September 30 had 13,723, advisors, down from 15,086 at the end of September 2016.

The brokerage unit has revved up signing bonuses and headhunter fees to attract experienced brokers, with some success, bank officials said. Advisor headcount fell by a net 76 in the July-September period—and is down 2% from 12 months earlier—but the decline primarily reflects departures of older advisors who retired and younger ones dropping out of the industry.

“This was an outstanding quarter for recruiting and our pipelines remain strong,” spokeswoman Shea Leordeanu wrote in an email, noting that Wells Fargo Advisors hired more brokers than those lost to competitors.

She said Wells expects retirements of experienced advisors to continue because of the success the broker-dealer’s “Summit” succession program that lets older advisors receive payouts post-retirement if they give their book to an in-house successor.

Wells Fargo Advisors, like its wealth management competitors at Merrill Lynch, Morgan Stanley and UBS, has encouraged brokers to move customers from transactional commission accounts to fee-based advisory accounts in order to stabilize revenue and to promote mortgages, deposits and other bank products to their wealthy clients.

Wells Fargo retail bankers referred $2.6 billion to brokers and private bankers from their bank-branch customers. The flow was up 3% from the year-earlier third quarter but down 6% from this year’s second quarter, the bank said.

Fee-based assets in advisory accounts grew 2% from September 30, 2018, to $569 billion—still a sliver of Wells Fargo Advisors’ $1.6 trillion of assets—and was primarily driven by higher market valuations that were offset in part by net outflows, Wells wrote in a supplement to its quarterly earnings report.

Average loans to wealth segment clients over the quarter rose $2 billion to $75.9 billion from 12 months earlier while average deposits sunk by $11 billion to $142.4 billion.

The wealth and investment management division overall reported a 75% year-over-year gain in net income to $1.28 billion, but $1.1 billion of the profit was driven by the sale of its institutional retirement and trust business on July 1. Net interest income fell 5% over the three-month period due to lower interest rates and lower average deposits, Wells said.

Revenue excluding proceeds from sale of the retirement business fell during the quarter because of the lower net interest income and lower gains from investing lower deferred compensation money in equities, the company said. Expenses rose 6% in the wealth sector on a $103 million impairment charge for capitalized software, personnel expenses and operating losses, partially offset by decreased compensation and deposit payments.

Wells Fargo & Co., which as of next week will be run by former J.P. Morgan executive Charles Scharf—its third full-time CEO and chairman since the scandal was revealed—reported a 23% decline in company third-quarter earnings to $4.6 billion.

Wells attributed the decline largely to falling interest rates, which depleted net interest income by $946 million from the year-earlier third quarter, and a $1.6-billion litigation charge.

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