Wells Fargo wealth management loses client assets and advisors in Q2

July 18, 2022 7:46 PM

A Wells Fargo Bank Branch Ahead Of Earnings Figures

Profits rose for Wells Fargo’s wealth management division in the second quarter of 2022, but the company saw advisor headcount and client assets fall.

The San Francisco-headquartered bank reported $603 million in net income from its Wealth and Investment Management arm, representing a 30% year-over-year increase, according to its July 15 earnings release.

Executives speaking on Wells Fargo’s earnings call on July 15 attributed the growth in net income to an increase in interest rates and loan balances.

“Revenue declined as growth in net interest income, driven by rising interest rates and higher loan balances, was more than offset by lower noninterest income as market conditions negatively impacted our venture capital, mortgage banking, investment banking, and wealth management advisory businesses,” CEO Charlie Scharf said during the call, according to a transcript from investment website Motley Fool.

For coverage of the company’s first-quarter earnings, click here. Scroll down for the main takeaways from the second-quarter report.

Wealth management revenue and earnings

Wells Fargo’s wealth and investment management unit earned $3.7 billion in the quarter ending on June 30, a 5% increase from the same time a year ago. The increase was driven by higher interest rates and loans, as Chief Financial Officer Mike Santomassimo explained during the Q2 earnings call.

“The increase in net interest income due to the impact of higher rates and higher loan balances more than offset the declines in asset-based fees, driven by lower market valuations as well as lower retail brokerage transaction activity,” Santomassimo said, according to the transcript.

Net interest income rose 50% year-over-year to $916 million for the second quarter, while noninterest income fell by 5% to $2.789 billion compared to a year ago.

CFRA research director Kenneth Leon said that while Wells Fargo’s platform changes demonstrate a desire to innovate, the bank’s competitors are moving faster in the digital sphere.

“WFC is trying to catch up to leading bank peers with competitive platforms for both consumer and commercial banking,” Leon said in a research note. “We think WFC is on the right track but competitors are innovating faster with digital banking.”

Decrease in advisor headcount and clients assets

The total number of financial and wealth advisors in the company’s wealth management arm fell by 635 to 12,184 advisors in Q2, representing a 5% decrease from 12,819 advisors at the same time last year. While the number of advisors decreased, annualized revenue per advisor grew for the second quarter to $1.2 million, marking a 11.9% increase from a year ago.

Total client assets also decreased in the second quarter, falling by 14% year-over-year to $1.835 trillion.

Expenses and loans rise

The wealth management arm’s noninterest expenses rose by 1% year-over-year to $2.9 billion for the second quarter. Average loans also grew 5% from a year ago to $85.9 billion, while average deposits fell by 1% from one year ago to $173.7 billion.

Santomassimo attributed the rise in average loans to the “continued momentum in securities-based lending,” while the decline in average deposits came as “clients reallocate cash into higher-yielding alternatives.”

Changes to differentiate wealth management division

CEO Scharf also discussed changes to platforms used by the wealth management segment to build a more differentiated service offering for clients.

Wells Fargo historically separated its digital platform and platform for independent advisors and ran both “as separate businesses with separate product platforms and separate technology,” Scharf said. Now, he said, the company has “combined the entire field under one leader,” so that there is “one set of products and service capabilities that all of those product lines have access to.”

“We are building out capabilities across all the dimensions from the investment capabilities to the banking capabilities, our lending capabilities, offering trust in the other areas of distribution that didn’t have access to those in the past,” Scharf said. “It’s an offering across all of our product sets directed in a much more segmented way than we’ve ever done in the past.”