Wells Fargo & Co. has unveiled the first phase of a $4 billion cost-cutting plan that will fold its bank brokerage channel into the larger wirehouse channel, according to an internal memo obtained by InvestmentNews.
The memo from Jon Weiss, Wells Fargo's head of Wealth and Investment Management, confirmed what had been rumored for several weeks: that the 3,500 bank-based advisers making up the Wealth Brokerage Services unit would become part of the Wells Fargo Advisors, which includes 9,500 wirehouse reps.
Organizationally, this means that Jim Hays, who heads the bank branch channel, will start reporting to David Kowach, head of Wells Fargo Advisors.
"This shift will bring our brokerage capabilities under one umbrella to increase coordination across the channels, simplify processes, eliminate redundancies, and improve how we operate, all with an eye toward better serving the needs of our changing client base," the memo states in part.
The memo did not cite a specific date for the transition, but the idea of bringing bank reps and wirehouse reps effectively under the same roof immediately drew skepticism.
"Culturally, the bank brokers are not nearly as motivated as the wirehouse brokers, and I think it will be very difficult to perpetuate the entrepreneurial drive of a wirehouse broker in a bank employee," said Steve Winks, chairman of Portfolio Construction Technologies.
"It's a different business," he added. "Not to say that one is better than the other, but the culture of 'you eat what you kill' is not very prominent in banks."
Danny Sarch, a brokerage industry recruiter, questioned whether Wells Fargo's cost-cutting efforts might be creating a problem by blending two groups of reps that have traditionally been kept separate.
"A bank broker and wirehouse broker are two different animals, so it remains to be seen if they can manage them under one roof," he said.
Banks reps, which typically operate in small teams inside bank branches, separated from the more aggressive wirehouse culture, are also known to earn lower payouts than their wirehouse rep counterparts.
Wells Fargo spokeswoman Shea Leordeanu said the compensation structures will not change.
"We were the first in the industry to create the multi-channel model, and we believe [having] advisers working in different channels is a competitive advantage," Ms. Leordeanu said. "This means that financial advisers, managers, and other team members will continue to serve clients from the community bank, Wells Fargo Advisors, and (independent) FiNet branches, as well as online and by phone. Choice has and will continue to be a major strength for us."
Ms. Leordeanu confirmed that "this initial transition will not lead to layoffs," and said that this is just the beginning of a series of changes between now and 2020.
The combination of the bank brokerage business with the larger wirehouse channel is the first significant step in a strategy that was initially laid out in May by Mr. Weiss during a Wells Fargo event.
The goal, as detailed in a power point presentation, is to cut $4 billion worth of corporate costs by 2020, half of which will be reinvested into the business and half of which will go to the corporate bottom line.