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March 02, 2018 at 02:50 PM
One day after Wells Fargo said it was reviewing some overcharges and incorrect wealth management fees, as well as possibly “inappropriate” referrals and recommendations affecting 401(k) rollovers to its wealth unit, industry watchers are speaking out on what the latest developments mean for the group’s 14,500 advisors.
“Now the investigation [of Wells Fargo] is finally hitting [its] advisory business,” said recruiter Danny Sarch of Leitner Sarch Consultants, in an interview.
“This is a big deal. Earlier investigations were related to banking. Now it’s here,” he explained, adding that he has fielded calls from three Wells Fargo registered reps who may leave the firm.
Over the past 18 months, the firm has been in the spotlight over a variety of fraudulent banking and other non-wealth problems.
“Will things continue to be as relentless as they’ve been?” Sarch asked.
Wells Fargo is working with the law firm Shearman & Sterling, which handled earlier investigations, to conduct the review of the wealth unit, according to several reports.
“You do not hire this [legal] team … casually,” the recruiter said.
“There’s a lot of speculation at this point,” Sarch said. “But my instincts tell me there’s always more to the story … and this could be the tip of the iceberg.”
(Like other Wall Street law firms, Shearman & Sterling has among the highest legal fees in the country. Court filings last year show partners can charge anywhere from $925 to $1,500 an hour, while associates can charge from $325 to $995 an hour.)
Broader Impacts
“Any series of ongoing issues can impact financial advisors’ ability to prospect and retain clients, and hence the same series of issues can have an impact on recruiting and retention of financial advisors,” explained Chip Roame, head of Tiburon Strategic Advisors.
Wells Fargo’s reference to “problematic fee calculations” (in its latest 10-K filing) “sounds like someone at HQ misapplied some fee schedules, maybe schedules that should have been lower on fiduciary accounts,” Roame explained.
