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December 07, 2016 at 09:34 AM
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.
