WFC Wells Fargo and Company

By Emily Glazer 

A federal investigation into sales practices at Wells Fargo & Co. now includes the bank's wealth-management business, extending the probe beyond the firm's retail-banking unit where the problems originated, people familiar with the matter said.

The Justice Department and Securities and Exchange Commission are conducting the investigation into the wealth-management business, these people said. Agents from the Federal Bureau of Investigation have been interviewing some wealth-management employees in the Phoenix area as recently as this week, some of these people said.

Wells Fargo declined to comment. Officials at the Justice Department and SEC also declined to comment.

Several U.S. attorney's offices, as well as a bevy of federal and state regulators, have been investigating Wells Fargo since the fall of 2016 when the bank disclosed widespread sales-practices problems. Those included bank employees opening as many as 3.5 million accounts without customers' knowledge or authorization. Wells Fargo has said it is cooperating with the investigations.

Arizona was one epicenter of Wells Fargo's retail-banking sales practices problems. Some employees in that region created fake email addresses using customers' phone numbers to open banking accounts or opened two accounts for each customer, a practice known as a "double pack." Some top executives from that region have since been fired by the bank.

Prosecutors' and regulators' inquiries have largely centered on Wells Fargo's retail-banking business, one of the largest in the U.S. by deposits. Late last year, though, the Justice Department told the bank to conduct an independent investigation into its wealth-management business after it received reports of problems there from whistleblowers, The Wall Street Journal reported earlier this month.

The current investigation by the Justice Department and SEC is separate from the bank's own inquiry, one of the people familiar with the matter said. The bank now faces state and federal investigations into its practices in auto-lending, mortgages, wealth and investment management and foreign exchange.

The widening of the sales-practices investigation has occurred despite Wells Fargo's attempts to put the problems behind it by restructuring different businesses, firing some executives and refunding customers. Wells Fargo also has faced regulatory censure for failing to address risk-management issues within the bank that led to improper customer charges in its auto-lending and mortgage businesses.

In early February, the Federal Reserve sanctioned Wells Fargo for failing to put proper risk controls in place, barring the bank from growing past the $1.95 trillion in assets it had at the end of 2017. The Fed cited "widespread consumer abuses" in its unprecedented rebuke.

Earlier this month, Wells Fargo disclosed in a securities filing its independent review into the wealth-management business. At the time, the bank said it is assessing "whether there have been inappropriate referrals or recommendations, including with respect to rollovers for 401(k) plan participants, certain alternative investments, or referrals of brokerage customers to the company's investment and fiduciary services business."

The bank's filing also disclosed that it is reviewing fee calculations within certain fiduciary and custody accounts. The bank has found instances of incorrect fees applied to certain assets and accounts that resulted in overcharging customers, according to the filing.

Chief Executive Timothy Sloan said at that time in a release that the bank is "committed to a thorough review of many processes" and reiterated "when we discover a problem, we are moving to find the root cause and fix it."

Issues flagged to the Justice Department by bank employees involved, among other things, proprietary bank investment products, the people familiar with the matter said. These tend to bring in more fees for the bank because they don't involve third parties.

Other banks have previously run into problems related to proprietary products. In 2015, JPMorgan Chase & Co. paid a $307 million settlement to regulators, including the SEC and Commodity Futures Trading Commission, over charges two of its units failed to disclose conflicts of interest to wealth-management customers related in part to such products.

Wells Fargo's wealth and investment management business includes advisory, brokerage and financial services under Wells Fargo Advisers. Customers in that business include around three million mass-affluent households, while its private bank has around 80,000 clients typically investing more than $2.5 million, according to the bank.

The bank has around 16,500 advisers, with the majority in its retail brokerage. Wells Fargo doesn't break out financial metrics for its brokerage division or the private bank, but the wealth and investment management unit brings in around 10% of overall bank profits, or $659 million in the fourth quarter of 2017.

Write to Emily Glazer at emily.glazer@wsj.com

(END) Dow Jones Newswires

March 16, 2018 19:04 ET (23:04 GMT)

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