The scandal revealed in a Los Angeles Times’ story in 2013 has Wells Fargo in the headlines on a regular basis three years later, and this has prompted some recruiters to take a very pessimistic view on Wells Fargo Advisors’ ability to attract new advisors and retain existing reps.
“This is something that will stay in the press and for long time,” said Danny Sarch of Leitner Sarch Consultants. “I’m talking with some [Wells Fargo] advisors who are outright angry. They view themselves as [employees] who are watched so closely, and then there are all these accounts that were opened falsely at the bank.”
As is the case with any problem at a company that has become widespread and captured the media’s attention, “This is bad,” explained Sarch, who does not work directly for Wells Fargo. “I have to think this is affecting those advisors who have been thinking about joining it. It’s giving them pause. Do they want to go to … a tainted brand?”
In terms of retaining reps at Wells Fargo, Sarch said, “This absolutely has started some people to begin interviewing and to explore options in leaving. Maybe not this weekend – but this could accelerate their plans maybe to the months ahead … in the first quarter of 2017.”
In September, Wells Fargo agreed to pay $185 million to settle charges by regulators tied to up to 2 million possibly fake bank accounts. It has since lost contracts for one year with the state of California, the city of Chicago and others and is being investigated for possible identify-theft charges.
John Stumpf, CEO while the fake accounts were opened, resigned and was asked to give some $41 million in pay back to the bank. And Warren Buffet, who leads Wells Fargo’s largest shareholder, Berkshire-Hathaway, is set to offer his views on the firm next week.
On Wednesday, new CEO Tim Sloan addressed many of these issues in a talk to employees. He acknowledged that the effort “to restore trust in Wells Fargo is going to play out over a long period of time — weeks, months, maybe years.”
He stressed that transparency will “become increasingly important” and “the point of all our hard work will be to return our company to greatness. … Our failures are not the result of our values. I suspect they are the result of some of us forgetting to be guided by them.”
Wells Fargo began running commercials on Monday to highlight steps being taken to halt abuses. Also earlier this week, the consulting group cg42 released the results of survey that found 14% of Wells Fargo clients have decided to close their bank accounts at the firm. Wells Fargo could lose up to 30% of its clients and some $4 billion over time due to the scandal, cg42 says.
Wells Fargo’s wealth-management unit, which includes about 15,100 advisors, had a 6% year-over-year jump in revenue in the third quarter to $4.1 billion; profits jumped 12% to $677 million; and client assets were $1.7 trillion, up 9% from the year-ago period.
“We’ve also seen minimal impacts so far within our Wealth and Investment-Management business,” Sloan said during a call with analysts.
According to a recruiter who works with Wells Fargo and wished to remain anonymous, “I do not see the actual [wealth] clients moving away from their advisors because of this [scandal]. However, advisors are talking about moving or are using it as an excuse to move.” Plus, he said, “Net recruiting is slowing.”
This week, two broker-dealers said they picked up advisors from Wells Fargo Advisors: Baird brought on two veteran reps in Florida, while RBC Wealth Management recruited one in Minnesota.
Before the fallout of the fraud started dominating headlines in September, “There had been some unrest or dissatisfaction on how the bank was infringing on wealth-management advisors,” the recruiter explained. “They felt [the bank] was getting into their business – by asking for loans to be pushed” onto private clients.
“So some advisors were already unhappy – and recently more so – and then this happens,” he said. “If you are a Wells Fargo Advisor and have been holding true to the name and the stability of the bank [until recently], you will now look at your options. How could you not?”
At the same time, recruiting is slowing way down, the industry observer says, as advisors consider their options and “take pause” before moving to Wells Fargo. “They may not want to move or may want more time to consider the move, but they have to wait for this to blow over,” the recruiter explained.
“At Wells Fargo, we’re in the process of reviewing everything we do to serve clients and create a supportive environment for team members,” the advisor unit said in a statement. “Many of our clients have longstanding relationships with us, and we recognize that the trust our clients place in our advisors and our company means everything …”
The key question, according to several recruiters, is how long the scandal will take to leave the headlines and whether or not it will leave a last scar on Wells Fargo’s reputation in wealth management.
“Once you’ve been on Wall Street for a while, you realize that time heals most things. While the scandal has been an embarrassment, many other firms have survived far worse and lived to fight another day,” said Mark Elzweig, a recruiter working with Wells Fargo.
“Wells Fargo is a very profitable firm with a broad-based platform, including excellent lending capabilities,” explained Elzweig. “Their turnover compared to other [wirehouses] is relatively low. I think that this will pass soon, and that they’ll return to their former status as a major firm that isn’t the subject of negative headlines.”
“When something like this happens, it means all recruiters are calling Well Fargo Advisors – everyone in the country – I’m sure,” said the veteran recruiter who wished to go unnamed. “And for independent advisors will Wells Fargo FiNet, it’s got to hurt, too.”
“I’ve been through this and know what is it like,” he explained. “Once state regulators get involved, others will pile on too. It will keep going and going. Where there’s smoke, there is fire. They will keep digging and may find more. It’s big, absolutely egregious and is not going away.”
As Sarch sees it, the ongoing scandal “is a big deal for Wells Fargo Advisors and its clients.”
“Every competitor wins in this situation, to a certain extent. They will lose people. If it drags on for months, with more investigations by authorities, that makes it worse. Advisors will get tired of answering questions,” he explained, and that often means they will consider departing.
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