Wells Fargo to focus on indie B-D business. For real

Wells Fargo's IBD, FiNet, hasn't been 'a growth priority' for the wirehouse. Now it is. How has the strategy changed?

After paying lip service to its independent broker-dealer business for years, Wells Fargo Advisors Tuesday afternoon will introduce its latest measure to bolster its independent brokerage: a new, special bonus for current Wells Fargo advisers who are employees and want to move to its independent contractor brokerage, Wells Fargo Advisors Financial Network, or FiNet.

Brokers who switch from the traditional employee wealth management group to FiNet lose their deferred compensation, which is pay set aside to be paid at a later time. The new bonus, internally dubbed an affiliation award, essentially offsets the loss of that compensation and is generally in the ballpark of the amount of the erased deferred compensation, according to senior Wells Fargo Advisors executives.

Wells Fargo Advisors has seen thousands of financial advisers leave the firm to join competitors or retire since 2016, when the parent bank, Wells Fargo & Co., first reported a wave of credit card and bank scandals, harming the bank’s reputation and creating difficult conversations with some advisers’ clients.

The new bonus is part of a revised strategy to build the independent brokerage business at Wells Fargo Advisors, the only one of four wirehouses that has an independent broker-dealer and registered investment adviser. In the past, Wells Fargo has touted the opportunity for advisers to move to FiNet, but that effort was inadequate and hampered by a conflict in how branch managers were compensated.

In another indication of change at Wells Fargo Advisors, Jim Hays, who had been head of Wells Fargo Advisors since July 2019, said last month that he was retiring. Hays is being replaced by Sol Gindi, who will also head the Wealth & Investment Management client relationship group. Gindi will report to Barry Sommers, head of Wealth & Investment Management.

“If you look back to 14 months ago, a decision was made that to make growing the independent side one of the top strategic priorities for Wells Fargo wealth management,” said John Tyers, a wealth management veteran executive Wells Fargo hired last summer to oversee FiNet, First Clearing and the wirehouse’s RIA business.

“FiNet has been more in maintenance mode,” Tyers said in an interview. “It wasn’t a growth priority. But the movement to independence, from wirehouse to independent broker-dealer or RIA, or independent to independent, just continues to go.”

“We’re trying to retain advisers on FiNet and the overall platform,” he said.

“If one of our wealth management advisers wants to go independent, we’re the choice,” Tyers said, adding that the bonus is tiered, based on annual production at the adviser’s point of departure and paid monthly over five years. He declined to give more details.

“It’s the right thing to do for advisers, and it will make it more challenging for recruiters like myself to recruit out of the Wells Fargo private client group if we have to compete with FiNet,” said Casey Knight, executive vice president of ESP Financial Search. “Wells Fargo has been such a good pond for recruiters to fish from. No one wants that to go away.”

Financial advisers see a higher payout — and can potentially make more money — when they work as independent contractors, as they do at FiNet, compared to when they are employees, as the vast majority of advisers are at Wells Fargo. Independent contractor brokers or investment adviser reps typically capture 80 cents of each dollar of revenue they generate in fees and commissions; employee financial advisers can see on average 35 cents to 45 cents.

The downside for financial advisers who become independent contractors is that they have to pay for overhead and expenses, like office space and staffing. But vast improvements over the past 20 years in the technology and services offered by large independent broker-dealers have offset some of those difficulties.

In the past, branch managers of Wells Fargo Advisors traditional wealth management were compensated for the advisers under their purview; they may have been reluctant to help an adviser become an independent contractor because that meant lost revenue.

Wells Fargo Advisors changed that compensation model for branch managers last year and now wants them to focus on finding advisers internally and externally for FiNet, Tyers said.

“There were conflicts of interest in the way we incentivized branch managers and market leaders,” he said. “Their compensation plan changed at the end of last year.”