Advisors at Wells Fargo Swept into Sales Scandal


As Wells Fargo keeps getting publicly slapped for fraudulent sales practices and brokerage misdeeds, many of the bank's financial advisors have been claiming an ability to stay above the fray.

Now, however, Wells Fargo's wealth managers are coming under increasing scrutiny for the same sort of strong-armed sales tactics exhibited by its large stable of bankers and brokers.

In perhaps one of the most comprehensive accounts yet, Bethany McLean -- who helped break the Enron scandal and chronicled mortgage banking double-dealing during the Great Recession -- has joined veteran investigative journalist Ethan Wolff-Mann to dig into advisor practices at Wells Fargo.

The pair traces a two-year saga of bankers setting up fake accounts to juice their own sales numbers. Wells Fargo has also agreed to pay a fine of $1 billion to settle charges of illicit dealing in auto and home lending.

But such coverage of egregious behavior has been expanding to other parts of the bank. Wells Fargo's board, still facing regulatory and legal pressures, admitted this spring to launching an internal investigation of its wealth management business.

In subsequent months, the Wall Street Journal has reported that four Wells Fargo advisors sent a letter to the Securities and Exchange Commission complaining about "long-standing problems" in their group.

Meanwhile, Yahoo Finance and the WSJ have detailed allegations of "increasing sales pressure" on advisors by their managers at Wells Fargo. Such coverage has highlighted concerns about advisors being pressured to move client assets into higher-fee accounts and more risky investments.

Examples given include trying to talk clients into putting their money into hedge funds, private-equity and other "alternative" investing strategies. Separately managed accounts using individual stocks and options trading have also been listed in various reports as part of Wells Fargo's past revenue-boosting thrust. 

This sort of behavior "raises a question as to whether these fiduciary advisors were serving their clients' interests — or their own," note McLean and Wolff-Mann. They add: "Fiduciaries must put the interests of the client first."

Besides being pushed to get investors to take out more loans and invest in riskier funds, McLean and Wolff-Mann report that some advisors also have been privately complaining about pressure to persuade clients to pay extra for certain financial planning services.

But that's not all. InvestmentNews has confirmed a widely speculated move by Wells Fargo to cut $4 billion worth of corporate costs by 2020. An internal memo uncovered by the paper lays out a first phase that calls for a combining of brokerage services with parts of the bank's wealth management operations.

As one industry observer relates to InvestmentNews, brokers and advisors are "two different animals." 

Such recurring headlines at Wells Fargo highlight an unfortunate reality in this industry: a commitment to do what is in the best interest of each client is not universal or required across much of U.S. financial services.  

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.

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. 


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