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Retirement Planning > Retirement Investing

Wells Fargo to Pay $1M FINRA Fine Over Client Reports

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Wells Fargo Advisors has agreed to pay a $1 million fine to the Financial Industry Regulatory Authority to settle allegations that it failed to adequately supervise advisors’ use of consolidated client reports from mid-2009 to mid-2015.

The agreement specifically cites Wells Fargo Clearing Services and Wells Fargo Advisors Financial Network, as well as a software tool used to create over 5 million consolidated reports, Application Reports.

The Wells Fargo businesses “had no system in place to review the contents of the Application Reports, including information about customers’ holdings away from the firms,” according to the settlement.

In addition, the regulatory group states that Wells Fargo reviewed cover sheets and contact information, for instance, but “failed to review the content of the consolidated reports … including customized values for assets and accounts held away from firms,” which advisors had to manually enter.

The broker-dealers also failed “to provide a mechanism allowing their representatives to designate which Application Reports were actually provided to customer,” as opposed to just being draft reports.

Brokerage firms must see that advisors take “reasonable steps” to ensure that consolidated statements have accurate values, the settlement states.

In response to the settlement, which was signed last week and posted online Monday, the bank said: “We take these matters seriously. As part of this settlement, Wells Fargo Advisors has implemented new supervisory procedures and guidance with respect to supervising external assets and consolidated reports.”

Regulatory Regime

Wells Fargo Advisors recently explained to its employee and independent registered reps that it plans to keep offering commission-based retirement accounts. The news comes as legal and political challenges to the Department of Labor’s new fiduciary standard—set to begin going into effect in April—continue.

“WFA strongly believes that our clients deserve options when making their investment decisions. Therefore, we will continue to offer traditional commission-based retirement accounts leveraging the Best Interest Contract (BIC) Exemption, as well as Advisory solutions,” the broker-dealer said in a memo sent to advisors in early December, including those with Wells Fargo Financial Network or FiNet, its independent channel.

Rivals such as Morgan Stanley and Raymond James also are taking such an approach to DOL, while Merrill Lynch is ending commissions in new retirement accounts. Merrill says clients can, for instance, move their brokerage IRA accounts to Merrill Lynch One, its investment advisory program that offers a single, asset-based fee schedule.

“WFA is implementing several enhancements to help ensure we are meeting the DOL’s best interest standard when advising and servicing our clients’ retirement accounts,” the bank explained.

In terms of how the election results will affect the new fiduciary standard, “None of us can say with certainty what will actually happen. Many different types of scenarios are possible, and we are planning for all of them. In the meantime, we will continue preparing for an April 2017 implementation,” it added.

(Wells Fargo’s roughly 15,100 advisors and 3,900 licensed bankers have some $1.5 trillion in client assets.)

Other Steps

The firm’s retirement clients will receive a new Retirement Account Policy Statement in the second quarter of 2017. “Before this mailing occurs, it is critical that FAs have conversations with clients and document their discussion in SmartStation Client Dashboard,” according to the broker-dealer.

Wells Fargo says it also is creating “a standardized process to document and help demonstrate when 401K-to-IRA rollovers and IRA-to-IRA transfers are in the client’s best interest.”

In addition, WFA says it has developed a “firm-approved list of available investments for retirement accounts,” based on research from Wells Fargo Investment Institute and other groups within the bank.

“In the coming weeks, you will continue to receive more detailed information outlining specific steps to take before … April 10, 2017,” it concluded in its memo.

— Check out Wells Fargo Splits Chairman, CEO Roles After Account Scandal on ThinkAdvisor.






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