Advisors have been leaving Wells Fargo as scandals have plagued both the consumer banking and wealth management units. Still, the firm plows ahead with its current recruiting strategy.
But will those efforts pay off in spite of the firm’s damaged reputation?
Wells Fargo’s woes started in September 2016, when federal officials revealed the firm’s retail bank employees had secretly opened millions of fake bank and credit card accounts without customers' consent, resulting in multi-million dollar regulatory penalties.
Separately, Wells Fargo’s wealth management unit started facing federal scrutiny earlier this year regarding potential sales misconduct.
Since then, the firm has unleashed a slew of public apologies, including the largest advertising campaign in its history. In the campaign, the company acknowledges its missteps and highlights the changes it is making moving forward.
“Our team members are focusing on transforming Wells Fargo into a better company for all of our stakeholders, and I am confident that we're on the right path,” CEO Tim Sloan said on a conference call with investors earlier this month.
In spite of the reputational fallout, however, Wells has yet to make major changes to its recruiting approach.
“We’ve added due diligence meetings in other cities besides St. Louis,” says Heather Hunt-Ruddy, head of client experience and growth at Wells Fargo Advisors. “That’s really the only fundamental change that we’ve made in terms of our strategy.”
New recruits attend the due diligence meetings to see if Wells Fargo is the right fit. The firm has long held the meetings in St. Louis — the headquarters of its advisory unit — and recently added new meetings on the East and West Coasts last fall.
Even the financial package is the same, Hunt-Ruddy says. While other wirehouses have scaled back in the deals they offer brokers, Wells Fargo offers one similar to what it offered before the scandals broke, says Louis Diamond, a headhunter who has worked with the firm.
This stay-the-course approach comes as Wells Fargo has dealt with falling advisor head count in recent quarters. The firm's brokerage ranks, at 14,226 advisors for the second quarter, was down by 173 from the prior quarter, the bank reported recently. That head count figure also marked a decline of 301 advisors from a year earlier.
“We were expecting the number to be that high,” says Hunt-Ruddy. She adds: “April and May were rough, but every month after that has gone back to more what we would consider normal attrition levels.”
The firm would not define what constituted normal attrition levels, but specified attrition was approaching what numbers had looked like before the banking scandals broke in 2016.
The company has pinned blame for its attrition this quarter largely on advisor retirements and the end of the firm’s A.G. Edwards deal, which came to a close in April, Hunt-Ruddy says. These are two reasons Sloan, the CEO, pointed out in a conference call to investors earlier this month.
Hiring announcements tracked by On Wall Street show a steady stream of advisors leaving the wirehouse for other firms.
Quote“April and May were rough, but every month after that has gone back to more what we would consider normal attrition levels.” - Heather Hunt-Ruddy, Wells Fargo Advisors
Those announcements, which On Wall Street confirmed with FINRA BrokerCheck records, show that from June 2017 to July 2018, at least 205 advisors left Wells Fargo not to retire, but to work for competitors. Those departing advisors were said to oversee more than $23 billion in client assets, according to their new employers. These figures likely underreport recruiting moves because not all firms make hiring announcements, while others delay such notices.
At the same time, Wells Fargo may still have some advantages in the recruiting marketplace. It's the only firm to operate in all three of the wirehouse, bank and IBD channels. It's also the only wirehouse not to have cut back on recruiting efforts. And unlike competitors UBS and Morgan Stanley, Wells Fargo remains in the Broker Protocol, an industrywide accord that facilitates advisor moves by permitting brokers to take basic client contact information with them.
Wells Fargo is also working to improve advisor retention, says Hunt-Ruddy, who notes that Wells Fargo started performing what it calls the “Branch Leadership Tour,” where Hunt-Ruddy and a team visit branches to get advisor feedback Hunt-Ruddy declined to comment on findings from the tour.
As far as advisors leaving the firm, Hunt-Ruddy acknowledged that scandals on the banking side did play a role in some of the departures. However, the wirehouse is not able to quantify how many departures are due to that reason, she says.
“It’s certainly the reason that I would give if I were leaving,” she adds.
However, Hunt-Ruddy says fewer advisors are leaving due to the banking scandals than due to retirement and the end of the A.G. Edwards retention deal.
Although aging advisors is an industrywide challenge, Wells Fargo has recorded steeper declines in head count than its key competitors, according to earnings statements. Wells Fargo has 860 fewer advisors for the second quarter of this year than it had at the end of the third quarter of 2016 when scandals on its consumer banking side first grabbed attention. Morgan Stanley and Merrill Lynch have reported net declines in head count over that same period of 174 advisors and 125 advisors, respectively.
Still, Wells Fargo maintains advisor retirements are a key factor and the firm and says its succession planning process in place is able to retain a high number of those client assets. The firm declined to provide a specific client retention numbers.
Wells Fargo looks to replenish its ranks with young talent through its Next Generation Talent training program. Hunt-Ruddy declined to provide raw numbers but said the training program has had an overall 80% retention rate over the past two years.
The firm is still recruiting experienced brokers, too, although it will not provide hiring numbers. Among the new teams is the Valdez Wealth Management Group, which joined Wells Fargo's branch office in Westlake Village, California, in early July.
This was the first move for advisor Louie Valdez, who previously spent 26 years at UBS, according to FINRA BrokerCheck. Nicholas Sondgeroth, an advisor of two years, and two associates are also moving alongside Valdez from UBS. The team managed $200 million in client assets while at UBS, according to a spokeswoman for the team.
“Wells Fargo better serves the clients we work with,” Valdez said in an email. “For example, they do not charge administrative fees for clients who have $250,000 or more at Wells Fargo.”
He added that his clients' response had been “overwhelmingly positive.”
With future hires, the recruiting deal Wells Fargo offers might entice them over, says Diamond, the headhunter.
“By comparison now, since other wirehouse deals are down, they’re definitely one of the higher deals on the street,” he says.
The firm has set no goals in terms of recruiting growth for the end of the year, says Hunt-Ruddy.
In the meantime, she expects attrition to improve. She says she is unsure when it will go back to levels the firm saw before the scandals, but is optimistic things are moving in that direction.
“I think we work really hard to ensure that we have a firm where [advisors] can confidently tell their clients that they have made a choice to join a firm that really puts clients at the forefront of their decisions,” she says.