Wells Fargo Advisors scrutinized by Justice Department

DOJ orders Wells Fargo to conduct independent investigation of its Wealth and Investment Management business following whistleblower tips about "sales problems," according to the Wall Street Journal

Mar 1, 2018 @ 1:31 pm

By Bruce Kelly and Greg Iacurci

The Department of Justice has instructed Wells Fargo & Co. to conduct an independent investigation of its Wealth and Investment Management business, which includes Wells Fargo Advisors, after whistleblowers flagged "sales problems" in the unit, according to a news report from the Wall Street Journal.

The Justice Department ordered the investigation in late 2017, according to the report, which cited anonymous sources familiar with the matter. Whistleblowers alleged the presence of sales issues at Wells Fargo Advisors concerning "pushing particular products or services with an eye toward earning more compensation rather than finding the best fit for the customer," according to the Journal.

Wells Fargo acknowledged in a filing Thursday with the Securities and Exchange Commission that the review "is in its preliminary stages."

"A review of certain activities within Wealth and Investment Management (WIM) being conducted by the Board, in response to inquiries from federal government agencies, 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," according to the filing.

In a statement, Wells Fargo said: "Our top priority is to rebuild trust with all of our stakeholders. The disclosures in the 10-K filing reflect our continued commitment to transparency, even when all of the information or the final outcome of a matter may not be known just yet. We are making significant progress in our work to identify and fix any issues, make things right, and build a better, stronger company."

DOJ spokeswoman Kerri Kupec merely said, "The Department generally does not confirm, deny or otherwise comment on the existence of an investigation."

One Wells Fargo broker in the Midwest said early Thursday afternoon that the investigation "is all we've been talking about for the past 30 minutes here."

"There are no talking points from the firm yet to advisers," said the broker, who requested anonymity. "Where is management communication?"

According to the WSJ, Wells Fargo selected the law firm Shearman & Sterling to perform the investigation, the same firm that has represented the bank's board since a scandal in Wells Fargo's retail banking unit came to light in September 2016. The company was fined $185 million by regulators that month for opening banking accounts for a few million customers without their knowledge or approval.

The bank also was scrutinized last year for its auto-loan practices, whereby hundreds of thousands of clients who took out car loans were charged for insurance they didn't need.

Wells Fargo Advisors had experienced three consecutive quarters of adviser flight after news of the banking scandal broke. However, the firm seemed to turn things around in the third quarter last year, notching an increase of 37 advisers. It then saw a slight decline in adviser headcount in the fourth quarter of 2017.

The wirehouse ended 2017 with a total 14,544 advisers and brokers, a loss of 20 advisers compared with the third quarter. The total is statistically flat quarter-on-quarter, but is down more than 2% from 2016, when the firm ended the year with 14,882 advisers.


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