Wells Fargo brokerage unit delivers in 4Q

Brokers' pay rises on higher transaction revenue and asset-based fees.
JAN 17, 2014
Coming off a slower third quarter, Wells Fargo's wealth, brokerage and retirement units closed out the year with a strong showing. Profit among the three divisions rose 40% year-over-year, jumping to $491 million for the quarter with help from an $11 million boost from a reversal in provision of credit losses. Revenue in the fourth quarter was up 11% from a year earlier as the firm said that it benefited from higher asset-based fees, increases in net interest income and a rise in transaction revenue from the third quarter. Growth in fee-based business in the retail brokerage division was a bright spot on the balance sheet. By the end of last year, managed-account assets had risen 23% to total $375 billion, about a quarter of the $1.4 trillion client assets at the brokerage unit. The firm said that the bump in client assets was driven by strong market performance as well as new assets coming in. The growth mirrors efforts to increase managed-account assets at competitor firms. Assets held in managed accounts industrywide rose almost 21% from the third quarter of 2012 to the third quarter of 2013, according to data from consulting firm Cerulli Associates Inc. Morgan Stanley, for example, saw its fee-based client accounts rise by 22% in the third quarter last year to $652 billion, about 36% of its brokerage unit's total client assets. Overall, client assets at the Wells Fargo retail brokerage division were up 12%. The wealth management segment, which includes the firm's Abbot Downing group for ultrawealthy clients, and the retirement division were up 7% and 15% year-over-year, respectively. Total assets at the firm hit $1.6 trillion. Another area of growth for the firm has been the partnership of the wealth, brokerage and retirement units with the commercial-banking side. In the fourth quarter, the firm said that it cross-sold an average of 10.42 products per brokerage household, up from 10.27 a year earlier. Those products include items such as credit cards, mortgages and other banking products. “We achieved record cross-sale across the company,” John Stumpf, the firm's chief executive, said Tuesday during a conference call. “The partnership, especially between the community bank and wealth, brokerage and retirement couldn't be better, and there is tons of opportunity there.” Average loan balances in the retail brokerage unit rose 24% from the prior year. Brokers at the firm should have seen some benefits from that growth. The firm said that expenses rose 1% from the third quarter to $2.655 billion due to “increased broker commissions and other expenses.” The wealth, brokerage and retirement units accounted for 17% of Wells Fargo's $20.7 billion in revenue in the quarter. Overall, however, revenue for the bank dropped to $83.8 billion last year, from $86.1 billion in 2012.

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