To boost its retention and recruiting efforts, Wells Fargo is rolling out a succession program that can bring retiring advisors as much as 225% of their trailing 12-month fees and commissions to be paid for over a 10-year period — or earlier if they chose to take payments via a loan.
The program includes a new retirement loyalty award representing 25% of the retiring rep’s yearly production. Advisors taking on the retirees’ client base will be eligible for a new book acquisition award of up to 100% of the retiree’s trailing 12-month fees and commissions.
“This program is a category killer in the space. It’s about investing 100% in the next generation to take on more clients,” said John Alexander, head of advisor-led business for Wells Fargo. “No one else is doing this.”
Starting April 1, the Summit Program will be available to employee advisors in the Private Client Group and Wealth Brokerage Services (which are being merged), but not those in the Financial Network, or FiNet program for independent advisors, or the bank’s new affiliation program for RIAs.
Recruiting, Retention Woes When asked if the program is aimed more at retention or recruiting, Alexander said it is “attractive to all our advisors and to those who are the best in the business who are not yet here.”
In light of negative headlines its parent company continues to make, Wells Fargo Advisors could use a boost. The group had 13,968 advisors, down nearly 600 from a year ago and about 100 from the prior quarter, as of Dec. 31, 2018.
Since the bank’s fake-accounts scandal erupted in fall 2016, when it had 15,086 registered reps, the bank’s wealth unit has lost 1,118 reps.
Total assets for WFA also are declining. They stand at $1.7 trillion, down 10% from last year due to lower market valuations and net outflows, the bank says. Average loan balances of $75 billion, however, rose 3% from last year, mainly thanks to growth in nonconforming mortgage loans.
“It’s really a smart investment in the future. No one could be more excited about this than we are,” Alexander said. “It’s a huge step for us.”
Long Time Coming The Wells Fargo executive says he and others “have been talking about this for years.” He points to Kim Ta, director of Teaming and Succession Planning, as the individual who “figured out how to make it happen.”
Succession planning and retirement issues are serious matters for the industry, Alexander said: “We know the demographics of the next five to 10 years involve a massive transfer of books of business.”
“We have been thinking about … how to invest in where it makes the most sense,” he explained. “This program supports all of our advisors transitioning out of the business over the next few years and those advisors who are still in growth mode. All of them should be a buyer or seller.”
Kestra News Meanwhile, independent broker-dealer Kestra Financial is being bought by the private equity group Warburg Pincus. Its prior owner, Stone Point Capital, will keep a minority stake in it, as will its management and possibly some of Kestra’s roughly 2,000 affiliated advisors.
Warburg Pincus comes with some fairly deep pockets — $43 billion in assets in under management invested in about 180 companies. Stone Point works with $19 billion in assets.
“Warburg is a savvy PE firm in the space, with an investment in Facet Wealth and prior investments in The Mutual Fund Store and Financial Engines,” said Chip Roame, head of the consulting firm Tiburon Strategic Advisors. “This move continues a trend of PE firms acquiring IBDs.”
Plus, given questions over how long stocks can stay at their current level, Kestra’s timing at finding such a partner is quite good, according to recruiter Jon Henschen of Henschen Associates.
“Warburg entering into a purchase at this point of the market cycle is an indicator that they will be a longer-term player, weathering through any market downturn,” he said. “In market downturns, when capital is in short supply, PE firms are your best friend.”
Other industry watchers, like Nexus Strategy’s Tim Welsh, agree. “For Kestra, this is very good news to have a growth buyer in their camp, a firm that will invest in the business, particularly now that the Department of Labor’s [proposed] fiduciary rules are way in the rearview mirror,” he said.
Kestra President & CEO James Poer is pleased, as well. “The transaction came up faster than we anticipated and is the right thing for us to do,” he explained.