Despite ongoing regulatory woes for its parent bank and a slipping headcount of financial advisors, Wells Fargo’s wealth manager boosted its profit and client assets by double digits.
The bank’s Wealth and Investment Management unit has lost more than a net 1,200 registered representatives from the ranks of Wells Fargo Advisors or its Private Bank in the past 12 months, the firm said in disclosing its third-quarter earnings on Oct. 12. While a consent order from the Consumer Financial Protection Bureau in connection with Wells Fargo’s unauthorized account scandal expired last month, the Office of the Comptroller of the Currency leveled a penalty of $250 million against the bank based on the regulator’s allegation of problems with its mortgage servicing and violations of a separate consent order three years ago.
In prepared remarks on a call with analysts, CEO Charlie Scharf described the end of the CFPB consent order as the firm’s “second important regulatory milestone we achieved this year” after a different OCC consent order expired in January.
“The recent OCC actions are a reminder that the significant deficiencies that existed when I arrived must remain our top priority,” Scharf said, according to a transcript by the website The Motley Fool. “I believe we’re making meaningful progress, and I remain confident in our ability to close the remaining gaps over the next several years. Having said that, it continues to be the case that we are likely to have setbacks along the way. We are a different bank today than we were several years ago. We run the company with greater oversight, transparency and operational disciplines.”
Headcount slippage: In the third quarter, the number of financial and wealth advisors at Wells Fargo dropped by 1,241 year-over-year, or 9%, to 12,552 reps. Many have left this year as a result of the firm’s move to exit from any international business in wealth management. At the same time, the smaller footprint of advisors is more productive: Annualized revenue per rep jumped 21% from the year-ago period to $1.17 million. Plus, client assets rose 13% to $2.09 trillion due to higher equity values. Attrition has tapered off since the last quarter, which will be the “last significant quarter of international advisor departures,” spokeswoman Shea Leordeanu said in an email. Despite retirements and exits, the firm has seen an “increase in hiring momentum this quarter with an influx of million-dollar producers joining in channels across WFA” and has a strong pipeline in the fourth quarter, she added.
Wealth management structure: Asked by one analyst about its wealth management strategy, Scharf divided the firm into “four distinct buckets:” its online services, bank branch advisors, traditional brokerage and independent arm. “We’ve got those distinct, different points of distribution, and we’re focused equally on maximizing the value that existed in all of those,” Scharf said. “Historically, I think we ran it much more as just one big opportunity. And I think we feel like we have underinvested in the online piece and the independent piece, for sure. The bank branch piece is something which we think is just a very meaningful opportunity given the amount of affluent customers that we have in our branch footprint.”
Reorganization: This summer, Wells Fargo appointed Ex-AdvisorEngine chief growth officer John Tyers to a newly created role as head of the independent group at Wells Fargo Advisors. In the position, he oversees the Wells Fargo Advisors Financial Network and its custodial arm. The bank also organized its wealth manager under eight divisional leaders in an effort to create “better coordination and efficiency,” according to Chief Financial Officer Michael Santomassimo. Despite rising compensation relating to higher revenue than the same time a year ago, the firm slashed expenses not relating to revenue by 6% and its non-advisor headcount by 10%. In addition, it “implemented a more efficient client service model across all distribution channels and [has] reduced total square footage by rationalizing our real estate footprint,” he said.
Bottom Line: The wealth manager earned net income of $579 million on $3.62 billion in revenue for the quarter. The gains in equity values drove the 10% hike in revenue above the year-ago period, according to the firm. In terms of profit, the unit’s earnings soared by 38% year-over-year. For the first three quarters of the year, its net income of $1.46 billion is up 42% from the same period in 2020.