Podcast Center
Video Center
Webcasts
Resource Center
Events
By 
April 03, 2018 at 05:33 PM
Photo: Daniel Tepper/Bloomberg
Two weeks 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, the role of regulators in the probe of these practices is becoming clearer.
The Department of Justice and Securities and Exchange Commission are involved, and agents with the Federal Bureau of Investigation have been speaking with some employees of the wealth unit in Phoenix, according to a report in the Wall Street Journal. This development, though, was contradicted by Jonathan Weiss, a senior vice president in Wealth and Investment Management, according to a memo he sent out to the wealth unit.
Wells Fargo declined to comment on the matter, but referred to a statement in its annual report: “Our top priority is to rebuild trust with all of our stakeholders. … We are making significant progress in our work to identify and fix any issues, make things right, and build a better, stronger company.”
The DOJ asked Wells Fargo for an independent review of practices at its wealth unit after whistleblowers revealed problems there, the Journal said, adding that the current investigation by the DOJ and SEC is separate from the bank’s own inquiry. Employees have pointed to issues with the bank’s own investment products.
“Now the investigation 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.”
The latest details about the wealth-unit investigation come just days after Wells Fargo said CEO Tim Sloan received a 36% bump in pay to $17.4 million — a move heavily criticized by Sen. Elizabeth Warren and others — and one month after the Federal Reserve barred the bank from growing its balance sheet.
The Fed development is tied to issues that have plagued the bank for the past 18 months or so, mainly concerning fraudulent sales practices within its retail bank.
Massachusetts securities regulators have opened an investigation of Wells Fargo Advisors to better understand the extent of problems revealed by the bank in early March. Specifically, they aim to better grasp the extent of inappropriate referrals of brokerage clients to managed and advisory accounts, unsuitable recommendations of alternative investments, as well as unsuitable referrals and recommendations tied to 401(k) rollovers.
“Wells Fargo’s recent banking scandal, which involved opening bogus accounts for their customers, leads me to believe that where there is smoke, there’s fire,” said Commonwealth Secretary William Galvin, the state’s top securities regulator, in a statement. “I need to be assured that Massachusetts residents haven’t been burned by corporate greed.”
Wells Fargo Advisors includes about 14,500 registered representatives.
Galvin’s office adds that it is seeking both more details on the scope of Wells Fargo’s own review of issues within the wealth unit and “reasonable assurances that any Massachusetts investors affected by unsuitable recommendations will be made whole.”
“I am aware that there has been a recent trend in the industry to push investors into wealth management accounts which may bring more revenues to the firm, but which are not suitable for all investors,” Galvin said. “Given the recent retirement savings crisis in America, referrals and recommendations involving 401(k) accounts should be closely scrutinized, in light of the Department of Labor’s fiduciary rule.”
Meanwhile, industry watchers are speaking out on what the latest developments mean for the group’s 14,500 advisors. 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 from 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
