Wells Fargo eyes profit margin as low-hanging wealth opportunity

Like many of its wealth management rivals, Wells Fargo thinks the profit margins for its wealth management business could be a tad bit better.

Reporting its third-quarter earnings on Tuesday, Wells Fargo said its "efficiency ratio" for its wealth and investment management unit in the July-to-September period was 82%. The efficiency ratio refers to the percentage of the wealth division's revenues that are eaten up by noninterest expenses.

Although that ratio was slightly improved from the previous quarter, it still lags behind similar profitability measures posted by some of Wells' direct wirehouse competitors. Morgan Stanley, for example, has been moving toward having only 70% of its wealth management revenue taken up by expenses (in other words, achieving a 30% profit margin.)

Cross-selling and more alts in portfolios

Speaking to analysts Tuesday, Wells Fargo Chief Financial Officer Michael Santomassimo said one way Wells Fargo is looking to improve its margins is by encouraging advisors to arrange loans and other banking products for their clients. Wells is among many large banks with a wealth management unit that views such "cross-selling" as a key way to boost their businesses.

Santomassimo said advisors could also place more clients in so-called alternative investments. Many firms have been pushing vehicles like private equity, private credit and private real estate in recent years as a way not only to provide investors with greater returns and diversification but also often higher fees for themselves.

"So there's a whole bunch of initiatives that underpin some of that," Santomassimo said. "But we do expect to see a margin improvement in that business, and that will contribute to overall returns as we look forward."

Rising revenue, asset totals

The wealth management unit's efficiency ratio of 82% came in a quarter that saw its revenue rise by 8% year over year to $4.2 billion. That increase was partially offset by an 8% year-over-year rise in the division's noninterest expenses, which came in at $3.4 billion.

Santomassimo said that Wells had $220 million in higher compensation expenses stemming primarily from revenue generated in the wealth management business. The higher revenue again was tied to "strong market performance."

Subtracting all the wealth and investment management unit's expenses from its revenue left $591 million in net income, a figure up 12% year over year.

Wells Fargo's asset totals also increased, mainly driven by rising values in stocks and other markets. Wells Fargo's tally for total client assets rose by 8% year over year to hit $2.47 trillion.

Wells CEO Charlie Scharf told analysts that asset flows into the firm's "premier channel," for clients with $250,000 or more, were up by 47% year over year in the first nine months of 2025.

"The opportunities remain significant," Scharf said. "We estimate that our existing bank customers have trillions of assets at other financial institutions and we are not fully meeting the lending, deposit and payment needs of our existing wealth clients."

Of the wealth management unit's total assets, roughly $1.1 trillion was held in advisory accounts (up 11% year over year) and $1.37 trillion was held in brokerage accounts (up 5%.)

Assets in advisory accounts are generally prized for their ability to produce steady streams of fee revenue, whereas assets in brokerage accounts tend to generate money only on securities and other transactions. Wells Fargo said its increase in noninterest income was driven largely by collections of higher fees from stocks and other assets that have risen in value.

"Underlying business drivers showed solid momentum from the second quarter in advisor recruiting, net asset flows, loan and deposit balances and total client assets," Santomassimo told analysts Tuesday.

Attracting, retaining advisors through 'FiNet' indie channel

Like many large wealth managers, Wells Fargo has ceased providing a headcount for its advisor workforce every quarter. The last time Wells reported the number, in early 2023, the tally stood at around 12,000 advisors.

Scharf told analysts Tuesday of work the firm's wealth management arm has been doing to make itself more appealing, including by investing in its Wells Fargo Advisors Financial Network, or FiNet, a channel for advisors who prefer to work as independent contractors rather than direct employees.

That, Scharf said, "has helped to increase advisor retention and the quality of financial advisors we've been able to recruit. Advisor attrition has declined every quarter this year."