A report issued Thursday by the Democratic staff of the House Committee on Financial Services entitled “The Real Wells Fargo: Board & Management Failures, Consumer Abuses, and Ineffective Regulatory Oversight” found that due to “serious deficiencies in its infrastructure for managing risks to consumers and complying with the law…Wells Fargo’s customers have been exposed to countless abuses, including racial discrimination, wrongful foreclosure, illegal vehicle repossession, and fraudulently opened accounts.”
While several agencies and institutions took public enforcement actions against Wells in 2016 and 2018—including regulators, the Consumer Financial Protection Bureau, the Office of the Comptroller of the Currency and the Federal Reserve—the firm “has yet to fully satisfy” the orders, according to the report.
The report itself is the culmination of an investigation launched in February 2019 by Committee Chairwoman Rep. Maxine Waters, D.-Calif. It sought to determine and evaluate the non-public actions taken by Wells Fargo’s board, management and regulators to make change at Wells Fargo and identify policy solutions to ensure consumers are protected from further abuses by megabanks like Wells.
Among the key findings of the report are that financial regulators knew about serious problems at Wells but failed to take public enforcement actions. In addition it was found that Wells’ board failed to address the firm's problems and prioritized financial and other considerations above fixing the issues until forced to do so by regulators. The board also failed to hold senior management accountable for repeatedly failing to meet regulators’ expectations. Finally, the report found that “the potential for widespread consumer abuse still remains” at the bank.
Wells Fargo Advisors, the St. Louis-based wealth management unit of Wells Fargo, has been hemorrhaging advisors since the many issues at the bank first began coming to light in 2018. Q3 2019 advisor losses came to 211 advisors, or 2% of the force, and in Q4 the firm lost 456, or 3% year over year.
The megabank hired Charlie Scharf, a Visa veteran, as CEO in September of last year to turn around the bank’s business. And Wells has gone out of its way to offer new services to advisors, such as the independent RIA unit it announced in 2019, which is serviced by First Clearing and TradePMR and counts about a dozen firms using its services to date.
Wells Fargo Advisors has also been aggressively recruiting. Company spokeswoman Kim Yurkovich told WealthManagement.com in January that the new advisors recruited to Wells Fargo during the year from other firms (meaning, advisors with some experience) were in fact up 27% over 2018, and the firm said those experienced hires were hitting production levels that were 57% higher than the average “experienced” team at competing firms.
Yurkovich said this was evidence to indicate that despite smaller producers leaving, the firm was having success recruiting larger, more productive teams.
While the jury is still out, Wells may not be in that big a hole, at least not due to its reputational issues, and one outside observer had a positive outlook about Wells Fargo Advisors’ ability to bring in new blood.
“The situation at Wells Fargo is unfortunate, but the company has done a great job in trying to course correct,” said Greg O’Gara, an analyst at Boston-based consulting firm Aite Group. “Any time you have a question of reputation in the advisory world or a firmwise bump in the road, recruiters will come out of the woodwork and target those advisors—it’s an extremely competitive landscape,” said O’Gara.
“In a way the issues at Wells may have been a perfect storm because the 10-year forgivable loans to former AG Edwards advisors would have expired, making them a target,” he said.
"With all these variables at play, I think Wells has done a terrific job in continuing to build out its advisory model,” O'Gara said.