Amid scandals surrounding its sales practices that have extended into the wealth and investment management unit, Wells Fargo said it lost 145 advisors during the first quarter, bringing its total headcount down to 14,399, according to the firm’s latest quarterly report. The firm’s advisor force has declined 2 percent from the year-ago quarter.
The bank also confirmed it faced a new regulatory hit from the Consumer Financial Protection Bureau and Office of the Comptroller of the Currency related to the firm’s automobile collateral protection insurance policies and mortgage interest rate lock extensions. It has agreed to pay a $1 billion fine for compliance risk management failures in the matter.
“We recognize that it will take time to put all of our challenges behind us,” CEO Tim Sloan said in a statement. “During the first quarter our team members continued to focus on our vision of satisfying our customers’ financial needs and helping them succeed financially. We also made progress on our priority of rebuilding trust with our customers, team members, communities, regulators and shareholders. The efforts to build a better Wells Fargo during the quarter included continuing to improve our compliance and operational risk management programs, investing in innovative products and services that enhance the customer experience including the roll-out of our digital mortgage application and predictive banking service, and increasing the minimum hourly pay rate for U.S.- based team members.”
The Wall Street Journal has reported that the Securities and Exchange Commission and the Department of Justice are investigating the wealth management division’s sales practices. And most recently, Bloomberg reported that advisors were steering clients towards investments that made the firm and its employees more money but may not have been in the clients’ best interests.
David Carroll, who retired as head of Wells Fargo’s wealth and investment management division last July after 38 years with the company, recently came out in defense of the business unit, according to the Charlotte Observer. “I’m proud of what we accomplished and feel good about the integrity of the business,” Carroll told the Observer. “And I feel really good as a meaningful shareholder of where [Wells Fargo CEO] Tim Sloan is taking the company.”
The wealth and investment management unit reported net income of $714 million in the first quarter, up 6 percent sequentially and 7 percent year-over-year, which the firm attributed to the reduced income tax rate. The unit’s revenue declined 2 percent sequentially to $4.2 billion due to lower gains on deferred compensation plan investments, lower net interest income and lower transaction revenue.
Higher market valuations drove an increase in total client assets, up 4 percent from a year ago to $1.9 trillion. The average closed referred investment assets increased 5 percent sequentially and 6 percent from a year ago.
The retail brokerage business, which includes Wells Fargo Advisors, reported client assets of $1.6 trillion, up 4 percent from a year ago. Advisory assets were $540 billion, up 10 percent from a year ago, due to higher market valuations and positive net flows, the firm said.
Overall, the bank had net income of $5.9 billion, or $1.12 a share, during the quarter, beating analysts’ expectations by 5 cents, according to SeekingAlpha.com. That’s up 5 percent from a year ago. Revenue of $21.9 billion, down 1.8 percent year-over-year, beat expectations by $160 million.