Wells Fargo has reached a $110 million settlement with its bank clients tied to as many as 2 million fake accounts. This news comes about six months after the bank agreed to pay $185 million in fines and penalties to federal regulators and the Los Angeles city attorney’s office.
Also, the Office of the Comptroller of the Currency lowered its score of how the bank is faring with community banking laws, explained that it engaged in an “extensive and pervasive pattern” of discriminatory and illegal lending practices for years. As one analyst described it, the downgrade is “an example of the ‘headline’ risk the company will be confronting throughout 2017,” according to Gerard Cassidy of RBC Capital Markets.
And this risk will continue to affect Wells Fargo Advisors, says recruiter Danny Sarch, in an interview. “We are not going to see this go away. It’s still a big deal. The ripples will consequently go on for months, months and months.”
The bank scandal has negatively affected the reputation of Wells Fargo Advisors and morale, says the president of Leitner Sarch Consultants.
“They share the brand, and the taint it continues to have is very frustrating,” he said. “I’ve been hearing that advisors know they are losing business.”
The problem for financial advisors isn’t that their clients are leaving, it’s that referrals and prospects are turned off by the brand.
“You know, when people chit chat at parties, and someone recommends their advisor. A potential client asks who the advisor is with, hears Wells Fargo and says ‘I cannot do business with them,’ ” Sarch explained.
In other words, the retail branch’s negative reputation is still spilling over onto the wealth management operations.
“Plus, there’s the embarrassment for advisors talking with [existing] clients” – who ask them questions about the fake accounts and even tease them about it, he said. “Like at the top of the conversation about opening a new account … the client might joke, ‘Please, don’t open up five checking accounts at the same time you are doing this.’ ”
Buffett’s Brand
The reputational downside for advisors cannot be understated, Sarch contends.
“Pre-scandal, Wells Fargo was a brand that was arguably as good as there was to the public” in the financial services sector,” he said. “It’s Warren Buffett’s bank and all that.”
But, as he pointed out when the scandal broke about six months ago, “There is taint” on the brand. “If you are an advisor staying there for the brand and figure you are losing business, you are going to leave.”
Yes, the Wells Fargo brand can come back over time. “But as a consequence of different stages of legal and regulatory issues, issues are going to drag on for a while – over the course of this year, if not longer,” Sarch said.
When it comes to scandals, “There’s always more to the story,” he said.
The latest figures reveal that Wells Fargo Advisors is losing reps, having less success at recruiting new reps than in the past or a combination.
In the fourth quarter of 2016, its total number of financial advisors fell from 15,086 to 14,888 in the third quarter. The number of traditional employee advisors dropped from 10,095 to 9,876, while the number of in-bank reps decreased from 3,472 to 3,458 during the same period.
Who’s been adding advisors from Wells Fargo?
TD Wealth Private Client Group, for instance, said last week that it tapped Sergio Iacovitti to become a relationship manager and John P. Ward to serve as an investment advisor in Mercerville, N.J. – both from Wells Fargo. (Iacovitti had been with Wells Fargo for 16 years.)
Raymond James recently added Sam Kim and his associate Scott Mann, in Ashburn, Virginia, from Wells Fargo Advisors with some $138 million in client assets and over $1 million in annual production. In late-February, a group left Wells Fargo to join Raymond James’ employee channel in Columbia, South Carolina, with about $2.4 million in yearly fees and commissions as well as $375 million in client assets.
And LPL Financial said that in the final quarter of 2016 it recruited six reps from Wells Fargo Advisors with between $50 million ad $99 million in assets and five with $30 million to $49 million.
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