Stagecoach

Wells Fargo's Woes: Adios Asset Management

Stagecoach

No matter how hard it has tried over the past several years, Wells Fargo keeps struggling to reinvent itself. Abuses in its auto lending and mortgage operations came on the heels of revelations that millions of fraudulent bank accounts had been opened by branch employees, who told authorities they were under intense pressure to boost their sales numbers. 

The bank's ongoing woes are expected to last for several years. These include efforts to stabilize management shakeouts after key executive departures. Indeed, Wells Fargo is being led by its third CEO since abuses started making headlines in 2016. 

The bank and aligned brokerage-related businesses face "spending billions of dollars to satisfy their regulators," according to the Wall Street Journal. At the same time, management is "attempting to slash at least $8 billion from the San Francisco bank's annual budget."1

After paying billions of dollars in response to regulatory charges and other lawsuits, the bank agreed last year to pay $3 billion to settle investigations by the Justice Department and the Securities and Exchange Commission. And it's still not in the clear. By the WSJ's count, Wells Fargo entered 2021 operating under at least 10 consent decrees sought by regulators to make sure cross-selling and related conflicts of interests didn't resurface. 

Throughout its protracted fight with government officials and lawyers representing former investors, Wells Fargo's wealth management arm has also come under scrutiny. In 2018, the bank's board confirmed reports it had initiated an internal investigation of its wealth management operations. Such coverage highlighted concerns about financial advisors being pressured to move client assets into higher-fee accounts and more risky investments. 

The latest news is that Wells Fargo has sold its asset-management business to private-equity investors for more than $2 billion. The "mostly actively managed group" of funds and related investments is a business "known for fee compression and asset outflows," noted industry publication RIABiz in an article about the deal.2 

The sale "represents the biggest shake-up" at Wells Fargo since the bank changed CEOs again in 2019, according to news agency Reuters. The former Wells Fargo Asset Management business, the report added, is expected to be "rebranded" after the deal closes in the second half of 2021.3 

The firm's CEO at the time of the acquisition, Nico Marais, was left in that same role by the asset manager's new owners. He was originally named co-CEO shortly after Wells Fargo Asset Management's previous CEO, Kristi Mitchem, departed in early 2019. Marais became sole CEO later that year.  

In assessing Wells Fargo Asset Management as a parent fund company, independent investment research firm Morningstar Inc. wrote at the end of 2020 that "its strategies' performance has not stood out nor are its fees markedly lower than rivals." 

Such an analysis came before the bank had announced it was unloading the business, with an estimated $578 billion of assets under management at the time. 

Even withstanding such a private-equity takeover, Morningstar found that a constant "changing of the guard" at Wells Fargo Asset Management signaled how much "the firm struggles to differentiate itself." 4 

This story could've ended differently if more of Wells Fargo's executives had held fast to their core identity as a venerable financial services brand built on trust.   

At IFA, which is an independently owned and managed registered investment advisor, we're required to serve as fiduciaries. That means our advisors strive at all times to act in the best interests of our clients — even if doing so goes against the best interests of IFA as a business.

Along those lines, we're not a broker-dealer and IFA doesn't custody assets, thereby elminating any conflicts of interest that would be associated with these types of activities. As true fiduciaries for our clients, we also stand ready to lend an expert hand in helping our clients solve a wide range of wealth management issues. 

At the core of our client-centric menu of services is an individually tailored and holistic financial plan. Every IFA client is urged to take advantage of this complementary wealth management process. In short, a comprehensive financial plan is designed to provide our clients with a more reliable road map to reach their financial goals. And armed with such knowledge, we find investors are less likely to fall prey to sales pitches by bankers and brokers — all trying to peddle services that can be fraught with conflicts of interest, higher fees and questionable investment practices. 

Footnotes:

  1. The Wall Street Journal, "Wells Fargo's $8 Billion Question: How to Slash Costs Without Angering Regulators," Feb. 17, 2021. 
  2. RIABiz, "Reverence Capital will again seek to reverse fortune of deadwood wealth division," March 26, 2021. 
  3. Reuters, "Wells Fargo sells asset management arm to private equity firms for $2.1 billion," Feb. 23, 2021. 
  4. Morningstar, "Parent" review, Dec. 20, 2020. 

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