Wells Fargo recently cut fees its employee advisors had to pay to move their practice to the bank's independent broker-dealer, but a smaller fee remains in place for those who want to exit the indie unit.

That said, that policy could soon change, as well. The firm's channel-switching strategy, which includes a disaffiliation fee, is currently under review and a formal decision is expected in late February, according to a person familiar with the matter.

For years, the bank has imposed a $4,500 disaffiliation fee on advisors who leave Wells Fargo Advisors Financial Network, the firm's independent broker-dealer, according to documents seen by Financial Planning. The unit, which is also referred to as FiNet, has about 1,400 brokers.

"The biggest issue with the $4,500 is not the cost, which for larger producers doesn't move the needle, it's the idea that Wells is acting like a sore loser when they were unable to keep their advisors happy and retain their business," says Frank LaRosa, founder and CEO of Elite Consulting Partners. "No other firm charges such a penalty or disaffiliation fee. It also represents a culture of nickel and diming the advisors all the way out the door."

Earlier this year, Wells Fargo made it easier for its employee advisors to transition into the independent broker-dealer, ending a policy of charging transitioning advisors 15% of their revenues the first year and 10% the second year.

"We feel that we have the best IBD on the Street. If they are interested in independence, we want to make sure they are talking to the home team," Kent Christian, president of Wells Fargo Advisors Financial Network, told Financial Planning last month.

In recent years, increasing numbers of wirehouse advisors have been leaving to create independent firms or to join existing RIAs and regional BDs. Many have cited what they say is the greater freedom and flexibility offered by these other channels. Others have also pointed to superior technology offerings.

Wells Fargo's headcount has suffered from these trends, with total advisor ranks dropping to 14,544 for the fourth quarter, down from 14,882 for the year-ago period, according to the bank's recent earnings report. A breakdown per channel was unavailable.

While the firm has continued to recruit brokers to its independent and employee arms, Wells Fargo's ongoing regulatory woes have also damaged its brand, according to recruiters. Last week, the Federal Reserve barred the bank from growing beyond its asset size at the end of 2017. The Fed's unprecedented action stemmed from a fake account scandal at Wells Fargo that has cost the bank millions in regulatory penalties.

(Bloomberg News)
(Bloomberg News)


The firm's disaffiliation fee would not likely deter advisors from leaving if they wanted to, according to recruiters.

"If you're a $1 million producer, then absolutely not. It'd be annoying," says Michael Terrana, a Chicago-based recruiter.

Rob Blevins, a recruiter whose brother and stepfather once had a practice with FiNet, says the independent broker-dealer is a "great firm," but the fee was "not advisor friendly."

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"It won't break the bank, but there's no reason for it," he says.

Disaffiliation costs also include any debt incurred, third-party losses, customer claims, arbitration matters and outstanding promissory notes.

Those obligations, including requirements that advisors repay promissory notes, are normal across the industry. But few independent broker-dealers charge advisors a disaffiliation fee for leaving, according to industry insiders.

"No other firm that I know of charges such a fee," Terrana says.

Raymond James, for example, imposes no such fee on advisors who wish to leave, a spokeswoman confirmed. The St. Petersburg, Florida-based firm also does not charge advisors a fee for switching between its independent and employee channels.

When asked if Ameriprise Financial ― which has more than 9,000 employee and independent advisors ― imposes a disaffiliation cost on advisors choosing to leave, a spokeswoman for the firm declined to comment.

A spokeswoman for LPL Financial, the nation's largest IBD by advisor headcount, could not be reached for comment.