Wells Fargo struggles to attract 401(k) business in wake of banking scandals

Advisers say clients are wary of selecting Wells Fargo for record-keeping and investment-management services due to reputational risk

May 15, 2018 @ 5:18 pm

By Greg Iacurci

Wells Fargo & Co.'s retirement plan business has suffered following a string of negative stories related to operations within some units of the broader company, according to 401(k) advisers who use Wells Fargo products and who have had conversations with Wells retirement executives.

Wells Fargo executives say the company's reputational damage hasn't resulted in a flight of existing 401(k) record-keeping or asset-management clients, but they concede it has been challenging to place new 401(k) business.

"It is impacting their business," said one retirement plan adviser, who has discussed the dynamic with a Wells Fargo retirement executive.

The adviser, who requested anonymity, has at least one client with Wells Fargo Institutional Retirement and Trust — the record-keeping platform — and has kept that business with Wells Fargo due to "fantastic" service. However, most plan sponsors conducting searches for a new record keeper are unlikely to select Wells Fargo over another firm offering similar services due to the associated headline risk, the adviser said.

Philip Chao, principal and chief investment officer at Chao & Co., said he received similar intel from a retirement-plan executive at Wells Fargo that new business "kind of dried up" when news of the banking scandal broke.

"I think it's fair to say they may not have lost existing clients, but I think they can certainly concur they've lost the opportunity to get new clients," said Mr. Chao, who declined to identify the specific executive.

It is challenging to quantify the precise impact of these revelations on Wells' defined-contribution business. Wells Fargo doesn't break out granular details for its DC business, which falls under the umbrella of its Wealth and Investment Management division, in quarterly earnings results. This unit also houses the firm's retail brokerage and wealth management business, comprising more than 14,000 financial advisers.

However, according to data from InvestmentNews sister company Pensions & Investments, Wells Fargo saw a 5% drop in its number of DC record-keeping clients from the third quarter of 2016 through the same period in 2017. It's been a roughly 10% drop since the third-quarter 2015. Wells provides record keeping services to more than 3,200 DC plans with $212 billion in assets, according to P&I data.

(More: Wells Fargo Advisors continues to bleed reps)

Wells Fargo asset management and record-keeping executives, speaking on background, acknowledged the reputational news has created a headwind to new sales, but said business has been trending in a positive direction. Revenue within the record-keeping unit, which tracks sales based on revenue retention as opposed to the overall number of clients, has fallen within executives' attrition target over the last few years, they said.

"We are proud of the strength of our institutional retirement and asset management businesses and the growth that our teams have been able to drive in recent years," said Robert Julavits, a company spokesman.

"Our top priority is to rebuild trust with all of our stakeholders," he added. "We are making significant progress in our work to identify and fix any issues, make things right, and build a better, stronger company."

There's been a barrage of negative news regarding Wells Fargo since September 2016, when Wells Fargo paid a $185 million fine for opening bank accounts for thousands of customers without their knowledge or approval.

Wells Fargo also said last year that it improperly charged thousands of auto-loan and mortgage customers and is working to refund them more than $100 million.

More recently, the Department of Justice instructed Wells Fargo to conduct an independent investigation of its wealth and investment management business after whistleblowers flagged sales problems. The Labor Department is also reportedly investigating the group's sales practices.

And, just last week, the company acknowledged its trust division improperly kept fee rebates that should have been passed on to a public pension plan in Tennessee.

"They're getting hammered now in the spotlight," said Brady Dall, a retirement plan adviser at 401(k) Advisors Intermountain.

"It's bled into plans where we have Wells Fargo funds in plan," Mr. Dall said. He explained that while the company has some "stellar fund managers and some great funds," participants may not understand those points, paying attention only to name brand. He's had to address concerns directly with some participants.

He hasn't had to replace a Wells fund to date, but said the company's reputation is something he's considered when deciding where to place new fund business.

"They may have to work even harder to win business at this point," he said.


What do you think?

View comments

Recommended for you

RIA Data Center

Use InvestmentNews' RIA Data Center to filter and find key information on over 1,400 fee-only registered investment advisory firms.

Rank RIAs by

Upcoming Event

Sep 13


Women Adviser Summit - Denver

The InvestmentNews Women Adviser Summit, a one-day workshop now held in four cities due to popular demand, is uniquely designed for the sophisticated female adviser who wants to take her personal and professional self to the next level.... Learn more

Featured video


What it took to win an Excellence in Diversity & Inclusion Award

Editor Fred Gabriel and special projects editor Liz Skinner explain how InvestmentNews chose the winners of our inaugural Excellence in Diversity & Inclusion Awards.

Latest news & opinion

SEC slaps Lockwood with $200,000 fine over unseen trading costs to clients

Clients were forced to pay fees in addition to the usual wrap charges, the regulator maintains.

Gotcha! 10 lessons from brokers gone bad

These cases show why regulators nabbed reps and firms, and how to avoid their fate.

Tax-credit investigation may trip up Wells Fargo

Justice Department is investigating bank's dealings in tax credits for low-income housing, sources say.

10 biggest boomtowns in America

These metro areas are seeing the biggest influx of people, work opportunities and business growth.

SEC ponders creating video to help investors decide between investment adviser and broker

Chairman Jay Clayton has suggested the host on the video would deliver similar information as conveyed on disclosure Form CRS.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print