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 on Tuesday, 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.’ ”
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.”