Wells exec: Fiduciary standard will ‘narrow’ choices
The head of Wells Fargo & Co.'s brokerage operations said last week that banks might reduce the number of investment products offered to customers if regulators impose a fiduciary standard on brokers
The head of Wells Fargo & Co.’s brokerage operations said last week that banks might reduce the number of investment products offered to customers if regulators impose a fiduciary standard on brokers.
The Securities and Exchange Commission’s proposal for a common fiduciary standard for brokers and registered investment advisers could increase the need for due diligence from banks and advisers, senior executive vice president David Carroll said at a Miami investor conference.
The SEC’s plan would make all brokers and registered investment advisers who provide personalized investment advice adhere to a common standard when dealing with clients. Broker-dealers currently must ensure only that an investment product and accompanying advice is suitable for their clients’ needs.
A fiduciary duty would mean putting clients’ best interests first, which might require passing up choices with bigger commissions.
“It’s going to cause the investment menu to narrow,” Mr. Carroll said. “We won’t have 6,000 mutual funds in our network probably two years from now like we do today.”
Wells Fargo, which has $1.2 trillion in client assets, is the third-largest U.S. brokerage firm, behind Morgan Stanley Smith Barney LLC and Bank of America Merrill Lynch.
The process of developing the standard is moving along the way Wells Fargo would like because it is being developed by regulators “and not by congressional staff,” Mr. Carroll said.
“We have been driving our brokerage business toward a fiduciary model starting back in 2004,” he said. “So we’re pretty pleased with where this is headed.”
RULE CHANGE
Congress asked the SEC to look at the effectiveness of existing rules as part of the Dodd-Frank financial services overhaul law enacted July 21. The standard is needed because many retail investors don’t understand and are confused by the roles played by investment advisers and broker-dealers, according to a staff report delivered to Congress last month.
The brokerage business will be forced to move away from models based on transactions in favor of more-customized solutions that may involve third-party managers, Mr. Carroll said.
Wells Fargo is looking to expand this business segment, which contributed about 6%, or $197 million, in net income to the company’s record $3.4 billion in profit for the fourth quarter, he said.
In December, chief executive John Stumpf said that the lender is “suboptimized” in wealth management and would be open to an acquisition. Although there aren’t many big targets available, Wells Fargo has the “track record and talent” to do a large-scale takeover if it wants, Mr. Carroll said.
He declined to discuss last week’s surprise resignation of chief financial officer Howard Atkins. The company attributed Mr. Atkins’ departure to personal reasons.
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