Wells Fargo pins shrinking FA ranks on retiring advisors
Wells Fargo's brokerage ranks continue to shrink, indicating that a long-running decline in advisor numbers has yet to come to an end.
Total head count at 14,226 advisors was down by 173 from the previous quarter, and down 301 from the year-ago period, the bank reported in its second-quarter earnings release.
At the same time, net income for wealth management fell 37% year-over-year to $445 million as expenses rose and noninterest income fell, the firm reported.
Wells Fargo attributed the decline in head count largely to advisor retirements.
"What you are seeing is an aging FA population," CEO Tim Sloan said during a conference call.
Fifty-six financial advisors retired during the second quarter, a spokeswoman said. And a total of 259 advisors retired from June 2017 to June 2018.
Sloan told analysts the wirehouse has a strategy for coping with these retirements.
"The key to us is to make sure we have the right transition in place, which David Kowach does, and to continue to have the right FAs and bonus structure, and to have things like Intuitive Investor [the firm's robo advisor], so that the new investor demographic continues to have options in addition to the traditional FA model," he said, referring to the president of Wells Fargo Advisors.
Replacing an aging advisor force is an industrywide challenge.
Advisors who are 55 years or older manage about 37% of assets and comprise 39% of advisor head counts, according to research firm Cerulli Associates.
However, Wells Fargo has recorded steeper declines than other major brokerage firms, according to earnings statements. The bank reported having 860 fewer advisors for the second quarter of this year than it had at the end of the third quarter of 2016 when Wells Fargo was first buffeted by scandals on its consumer banking side.
From the third quarter of 2016 to the first quarter of this year, Morgan Stanley's head count fell by 174 advisors to land at 15,682 while Merrill Lynch's broker ranks dropped by 125 to 14,829.
Advisor departures from Wells Fargo first picked up in late 2016 on revelations that the consumer banking side of Wells Fargo had engaged in questionable sales practices, including the opening of millions of accounts without client approval. That and other scandals have resulted in heightened regulatory scrutiny, fines of more than $185 million, and the departure of former Wells Fargo CEO John Stumpf.
Wells Fargo has lost at least 80 brokers managing more than $12 billion in assets before the end of the second quarter.
Industry changes and ongoing bank scandals have tilted the playing field in favor of smaller brokerages.
A recent report about bad incentives for brokers "did not accurately reflect how we do business and serve our clients," said Jon Weiss, head of wealth and investment management.
The FBI has reportedly interviewed employees at the bank’s wealth management unit.
Louis Diamond, a recruiter at Diamond Consultants, who has worked with Wells Fargo, anticipates the number of advisors exiting will slow down.
"Obviously the data tells a different story, but I think a lot of people that were negatively affected by the banking scandals … have already left," Diamond says.
Danny Sarch, president of recruiting firm Leitner Sarch Consultants, contends that there will be more exits to come, noting that making a career change can take several months of planning for most brokers.
"Anyone that left this quarter decided to leave months ago," he says.
"I can tell you that significant producers are interviewing and planning to leave, so I don’t see any change in the trend," Sarch adds.
So far this year, at least 130 advisors who oversaw nearly $16 billion in client assets left Wells Fargo to join competitors, according to FINRA BrokerCheck records and hiring announcement data compiled by On Wall Street.
To help rehabilitate the bank's image and address customer concerns, Wells Fargo has embarked on a campaign to improve compliance and other functions under Sloan, who took over after Stumpf stepped down.
And unlike its wirehouse competitors, Wells Fargo continues to actively recruit advisors from other firms. Plus, Wells Fargo remains in the Broker Protocol whereas UBS and Morgan Stanley both exited the accord in late 2017.
The firm also has both employee and independent advisor channels, a unique feature among the wirehouses.
Wells Fargo has also focused on its cultural appeal in addition to recent platform and tool updates, Heather Hunt-Ruddy, head of client experience and growth for Wells Fargo Advisors, said in an emailed statement.
"When we think about how we retain our advisors, it’s about culture and how we enable our FAs to succeed. Most of our leaders have worked in the field branch system as financial advisors or managers and we understand the nature and demands of the business because we’ve all been there ourselves. As leaders, we make ourselves accessible to our advisors and we genuinely care about the FA experience as much as the experience they deliver to our clients. Our culture is the result of our history of merging smaller firms, and we’ve worked hard to keep that connected feeling even as we’ve grown," she said.
In its earnings release, Wells Fargo noted that costs for its wealth management unit had risen.
Noninterest expenses, for example, jumped 9% year-over-year to $3.361 billion, largely due to higher regulatory, risk and technology costs. This was partially offset by seasonally lower personnel expense and lower broker commissions, Wells Fargo said.
Client assets in retail brokerage rose 3% year-over-year to $1.6 trillion. It was flat quarter-to-quarter, the firm said.
The firm is also reported that it set aside $114 million related to fee calculations within certain fiduciary and custody accounts.