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November 21, 2016 at 07:00 PM
As the country carefully watches Donald Trump’s presidential team move into action in Washington, D.C., and Hillary Clinton’s supporters look back on their failed campaign, Wells Fargo executives are making the rounds themselves, reflecting on what caused them to get into trouble with both bank clients and regulators.
“We could have moved faster and made some additional changes,” CEO Timothy Sloan told the Des Moines Register two days after the election, regarding the bank’s involvement with up to 2 million possibly fake accounts. “I think that is an important lesson here.”
In early November, the Financial Industry Regulatory Authority confirmed that it is looking into regulatory filings tied to at least 207 former employees of Wells Fargo Advisors who were dismissed for issues connected with its fraudulent accounts.
“FINRA takes seriously the integrity and accuracy of all filings made by firms, including Form U-5s. With respect to Wells Fargo, we are reviewing the accuracy of filings made by the firm with regard to individuals involved in the cross-selling activities that are the subject of the [Consumer Financial Protection Bureau] action,” the regulatory organization said in a statement.
“We are also reviewing cross-selling activities across the industry as reflected in a sweep letter, which is posted on our website,” it explained.
Earlier, Sens. Elizabeth Warren, Ron Wyden and Bob Menendez asked Wells Fargo about its response to unauthorized accounts and its FINRA disclosures of details related to fake accounts; the bank has until Dec. 5 to reply. Wells Fargo has disclosed that some 5,300 employees were fired over their involvement in the scandal.
The apparent incomplete nature of the bank’s U-5 filings may have deprived regulators of details that might have helped them uncover and stop the “illegal activity” sooner, the senators argued. In their letter, the senators say the bank filed close to 18,000 U-5 forms from 2011 to 2015 and that close to 20% — about 3,355 out of roughly 17,750 — were for employees listed as “discharged,” “permitted to resign” or “other” (which includes “failure to perform job duties”).
The senators explained that FINRA told them “slightly more than 600 of those 5,300 [fired] persons were registered at various times with [Wells Fargo Advisors …] between 2011 and early-2016, and … 207 of them were specifically terminated for issues that fall within the scope of the [$185 million CFPB] order.”
They also point out that of the remaining 400 FINRA-registered employees fired by Wells Fargo, it “is not clear if the bank filed U-5s at all.” FINRA staff told the senators that its review of the matter is “in its early stages” as it awaits further information from the bank.
In Iowa, Sloan said he believes only a few dozen Wells Fargo Advisors’ employees were fired over fake accounts. “There’s not a big issue there,” he told the newspaper. “It’s a fishing expedition from my perspective.”
(The executive was in the Midwest to meet with several thousand employees at the opening of a Wells Fargo museum in Des Moines.)
In other news, Wells Fargo has said it sees possible litigation losses reaching up to $1.7 billion versus its earlier estimate of $1 billion. It also has added the SEC to a list of agencies investigating its sales practices disclosures, according to regulatory filings.
The bank’s wealth management unit, which includes about 15,100 Wells Fargo advisors, said its revenue grew 6% from last year to $4.1 billion in the third quarter, while profits jumped 12% to $677 million. Its pretax profit margin was 27%. Client assets were $1.7 trillion, up 9% from the year-ago period.
In the latest quarter, Wells Fargo’s wealth management unit says it has changed the way it reports cross-selling, which it now classifies as “referred investment assets,” according to Reuters. The business had $1 billion in such assets as of Sept. 30.
DOL and The Wirehouses
The election of Trump, according to a variety of industry sources, could lead to the derailment of the Department of Labor’s new fiduciary rule. The soon-to-be president supports the Financial CHOICE Act, which seeks to replace both the DOL rule and the Dodd-Frank Act.
However, right before the elections and less than a month after telling its advisors that it would not offer new advised, or commission-based, brokerage retirement accounts starting in April 2017, Bank of America-Merrill Lynch told its FAs that effective immediately purchases of mutual funds in existing IRA accounts are no longer allowed.
