Securities Fraud Lawyers Blog
Industry watchdogs turn their focus on Wells’ wealth-management services
It seems that we may not have yet seen the end of the Wells Fargo accounts scandal. The Justice Department has taken an increased interest in Wells Fargo’s wealth-management unit following whistle-blower claims that the bank’s wealth-management customers have been affected.
According to a Wall Street Journal (WSJ) article, the Justice Department ordered Wells Fargo to conduct an investigation into the bank’s own wealth-management business, in response to claims of unfair practices. The investigation into any potential wrong-doing is the first focused on services offered by Wells Fargo outside banking, namely its financial and investment advisory business.
The well runs deep…Or rather, Wells runs deep
While it is the first examination into its wealth-management business, it is only the latest inquiry into the bank’s systemic history of engaging in unfair practices against consumers, uncovered in 2016 as part of an investigation by the Consumer Financial Protection Bureau (CFPB).
The CFPB’s investigation revealed that branch employees had created over 2 million fraudulent accounts and services in order to meet unrealistic sales goals imposed by the bank. Thousands of Wells Fargo customers were subject to fees accrued through accounts they had never created and charged for services they had never requested.
That discovery resulted in the largest fine ever imposed by the CFPB in the organization’s history, and the aftermath led to an end to Wells Fargo’s sales goals along with the termination over over 5,000 Wells employees and resignation of the bank’s CEO.
Things came to a head again in 2017 with more false accounts being uncovered.
When the dust seemed to finally settle, the number of false accounts had ballooned from 2 to nearly 4 million, with the bank being ordered to pay back millions in credits and refunds to customers. Additionally, the Federal Reserve placed a series of serious growth restrictions on the bank.
Fed Restrictions
The sanctions imposed by the Fed are some of the most uniquely harsh the central bank has ever set forth. The represent the final order of outgoing Fed-chair, Janet Yellen. In a statement given following the order in February, Yellen’s harsh tone reflects the harsh restrictions set forth:
“We cannot tolerate pervasive and persistent misconduct at any bank and the consumers harmed by Wells Fargo expect that robust and comprehensive reforms will be put in place to make certain that the abuses do not occur again… The enforcement action we are taking today will ensure that Wells Fargo will not expand until it is able to do so safely and with the protections needed to manage all of its risks and protect its customers.”
Under the sanctions, Wells may conduct on-going business like accepting deposits and offering loans, however any other growth strategies have been halted. What this essentially means is an all-out freeze on doing any business that would grow its current $1.95 trillion asset portfolio.
And, until The Fed deems that Wells Fargo has ‘cleaned up its act’ – including a C-Suite-level purge – , those sanctions don’t appear to be lifted anytime soon.
What does it mean for Wells Fargo’s wealth-management business?
This is already proving to have serious repercussions, as financial analysts are beginning to slash Well’s investment ratings.
It could also majorly effect its wealth-management advisory business.
Institutions like Wells Fargo recruit advisors to manage their various wealth-management service offerings. As such, they are not employees of Wells Fargo, but independent advisors contracted through the bank. If Wells Fargo’s wealth-management business looses face in the public eye, advisors are the ones directly affected. This could spell serious trouble for Wells’ advisory recruiters approaching reps. It could also result in an advisor-flight from Wells; those seeking to separate themselves from any hint of scandal.
In fact, Wells’ wealth-management business has already been hit with hundreds of millions of dollars in losses from the exits of brokers managing high-dollar accounts.
Have wealth-management customers been affected?
While the initial scandal appeared only to affect Wells’ credit services customers, the WSJ article raises new questions about whether customers of other service-offerings by the bank may have been affected, namely wealth-management customers.
According to the WSJ article, the bank initiated an independent investigation of several aspects of its wealth-management business, including that relating to 401(k) and alternative investment plans. The review is still in “preliminary stages”, so remains unclear to what extent customer accounts have been affected.
However, the investigation has sparked concerns in the financial industry, especially among advisors.
In addition to the Justice Department’s inquiry, Bloomberg also reports that Wells may be facing an investigation by the Securities and Exchange Commission (SEC) to determine whether an in-house, investment services system directed at the bank’s wealth-management customers violated securities laws.
What can wealth-management customers do?
While its currently indeterminate as to what extent this has affected customers, if you have any investments serviced through Wells Fargo you should contact your advisor or Wells Fargo account representative for more information.
You should also make sure to review any recent account statements over the past year. This is especially important if you have any alternative investment wealth assets. If you have any 401(k) investments or if you hold any fiduciary or custody accounts with Wells Fargo, you should be aware of all fees assessed on your account(s).
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