Bank of America (NYSE:BAC)
Historical Stock Chart
2 Months : From Jan 2020 to Mar 2020
By Rachel Louise Ensign and Ben Eisen
This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (February 3, 2020).
The booming stock market has meant brisk business for financial advisers. Not so at Wells Fargo & Co.
The bank's wealth-management profits have barely budged from 2016, the year its fake-account scandal burst into public view. Bank of America Corp. and Morgan Stanley, meanwhile, have posted double-digit gains in their wealth businesses.
The stall has some of Wells Fargo's more than 13,000 financial advisers heading for the exits. To stem the tide, the bank is luring new advisers with six-figure bonuses while asking for money back from those who don't meet performance goals, according to interviews with current and former Wells Fargo advisers.
Times are generally good for financial advisers, who are in high demand as the stock market rises and a growing population of retirees seek investment advice. What's more, fee-generating businesses such as wealth management have become more important for banks since low interest rates have crimped lending profits. But Wells Fargo is finding that it is hard to win back the trust it lost when it came to light that branch employees opened perhaps millions of phony accounts without customer knowledge.
Wells Fargo executives believe the wealth operation -- one of the bank's three main business lines -- is close to turning around after the scandal. Wealth-management head Jonathan Weiss has put new managers in place, and the bank said 2019 was its best recruiting year since before the sales scandal erupted. Yet expenses have jumped 23% from a year ago, in part because of higher compensation and benefits.
"We are proud that so many outstanding financial advisers are choosing to join us," a bank spokeswoman said. "We remain optimistic about the business and the future."
The business has a long way to go to make up ground it lost following the sales scandal. The wealth division managed client assets worth $1.9 trillion at the end of last year, up 12% from the end of 2016. Client assets at Bank of America and Morgan Stanley rose 21% and 28%, respectively.
Wells Fargo is paying up to replace advisers it has lost in recent years. It is offering candidates a bonus of as much as 200% of their revenue from the prior year, recruiters said, which is around 25 to 50 percentage points higher than what competitors are offering.
The bank is trying to attract advisers with bigger books of business, and it recently changed their pay structure to discourage them from taking on smaller accounts.
Wells Fargo's damaged reputation makes it a tough sell. "Advisers tell me they don't want to have to apologize for the firm they work for," said Brian Hamburger, chief executive at MarketCounsel Consulting, a consultancy to financial advisers.
Times are especially tough for financial advisers who work out of Wells Fargo branches and depend on referrals from bankers, according to current and former advisers. Referrals fell after the bank eliminated sales goals in 2016 to stamp out an aggressive sales culture that led to the fake-account openings. The lender has reintroduced some goals and says referrals from bankers to in-branch advisers are up.
Wells Fargo's consumer bank referred $2.6 billion of investment assets to the wealth business in the final three months of last year, up 18% from a year earlier, but still down from the $3.2 billion in the third quarter of 2016.
Some in-branch advisers said they are earning less than half of what they did at their former firms, and they are struggling to pay their bills and cutting back on expenses.
Wells Fargo has also sent some advisers repayment demands in connection with the upfront sign-on payments they received years earlier.
The payments are essentially advances, typically structured as loans that advisers repay with a portion of their monthly bonus payments, according to internal employment documents viewed by The Wall Street Journal. But the bonuses depend on meeting certain performance standards. Miss those targets, and Wells Fargo can dock the bonuses, causing the advisers to fall behind on the loan payments.
Advisers said the repayment notices they got from Wells Fargo were vague, and even managers weren't able to explain them. Some advisers say they have been told they are behind on their loans even when they are meeting performance goals or haven't worked at the bank long enough for them to kick in.
Wells Fargo wealth-management executives said the business explains pay clearly to financial advisers. They said only a fraction of advisers have, at some point over the past 10 years, received less than their full bonus payments.
Write to Rachel Louise Ensign at firstname.lastname@example.org and Ben Eisen at email@example.com
(END) Dow Jones Newswires
February 03, 2020 02:47 ET (07:47 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.