The tens of thousands of financial advisors working at the four major wirehouses that have long dominated the financial advice industry – Merrill Lynch, UBS, Morgan Stanley and Wells Fargo Financial Advisors – typically have one characteristic in common: They can't stand selling bank products, particularly when mandated by the home office.
These advisors are the most profitable in the financial advice industry, and the most coveted as breakaway brokers and recruits. And they can't stand having bank supervisors standing over their shoulders, telling them how many credit card or checking accounts they have to open per quarter to hit certain pay targets.
Product mandates are anathema to objective financial advice. My conversations over the years with financial advisors who have left the bank wirehouses to jump to a registered investment advisor or independent broker-dealer often focus on the advisors' concern over what could be perceived as pushing bank product.
Of course, this issue is as old as brokers charging commissions for stock trades and will never go away, regardless of the good intentions of advocates for a fiduciary standard for all 320,000 salespeople in the retail securities industry.
But the potential for conflict between a wirehouse and a financial advisor is always worth noting because it focuses the mind on the standard of care customers are due at all financial institutions. It's also worth pointing out that the vast majority of advisors at the wirehouses are employees of the bank and have to follow the dictates of those signing their paychecks and funneling advisors customer referrals.
Which brings us to a complaint filed this month in California by two veteran financial advisors against their former firm, Wells Fargo Clearing Services, which does business as Wells Fargo Advisors and counts more than 12,000 financial advisors across its various work channels.
The two advisors, Karen Keusayan and Richard Green, built a combined book of business with $1 billion in client assets before jumping to Morgan Stanley after a dispute that allegedly connects the advisors' control of private client information, the firm's private bank's demand for that information, and the control of almost $1.5 million in deferred compensation the two had earned over the years. The two advisors sued Wells Fargo Advisors on March 4 in state court in Los Angeles.
A key issue in the complaint is Wells Fargo's private bank seeking client information through a process called "client discovery reviews," according to the complaint.
The reviews, called CDRs internally and used to highlight potential service and sales opportunities, were to be compiled for use by the private bank side of the Wells Fargo operation, not the broker-dealer or financial services side where the two advisors worked, according to the complaint.
This is where an alleged conflict appeared. "High-ranking compliance personnel at Wells Fargo Advisors repeatedly told [Keusayan and Green] to never deliver or present the CDR to the client since, as it was explained by compliance, the CDR was a bank document," the complaint alleges. "Worse, [the two advisors] were told not to inform the client that a CDR had been prepared."
"These dishonest instructions—which forced [Keusayan and Green] into an impossible position wherein they were effectively unable to truthfully attest that their clients had been informed about the existence and internal dissemination to the bank of their sensitive private and personal information—caused [the two advisors] considerable concern," the lawsuit claims. As a result, they soon began raising their concerns about the issue with their supervisors.
The more the advisors pushed back about the CDR process, the more Wells Fargo Advisors management allegedly retaliated, according to the complaint. "Green was berated by a yelling supervisor in front of fellow employees, and Keusayan was informed that the bank would not issue a routine credit card to her sister, a customer, if a CDR was not on file," the complaint alleges.
They resigned in July 2021 and moved to Morgan Stanley. Wells Fargo Advisors then allegedly told Keusayan and Green they had forfeited close to $1.5 million in deferred compensation.
Wells Fargo, of course, has a long, well-documented history of bank scandals, to such an extent that some advisors have left the firm as a result of the public concerns. Wells Fargo Advisors is currently trying to remake itself as a force by building out its independent broker-dealer and RIA businesses.
"We deny the allegations in this case, and we will vigorously defend our position," a Wells Fargo Advisors spokesperson wrote in an email.
Financial advisors simply can't stand the type of conflicts alleged by Keusayan and Green. If the four Wall Street wirehouses continue to push a mix of banking and financial advice to what can be perceived as an unreasonable degree, they will continue to watch financial advisors walk out the door.
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