A July 27, 2018 article by the Wall Street Journal reports that a number of Wells Fargo financial advisers have sent letters to regulatory authorities alleging “longstanding problems with the bank’s dealing with wealth-management customers,” including sales goals that incentivized advisers to direct clients to invest in higher-fee products or to move assets between products or platforms, thus generating more revenue for the firm and higher bonuses for advisers. According to the report, one of these letters led to investigations by the Department of Justice and the Securities and Exchange Commission.
The Journal report discusses documents and interviews with dozens of current and former employees that detail various issues in Wells Fargo’s wealth management unit. Reportedly, advisers periodically “shifted client assets between products such as certificates of deposit and structured notes, or put clients into products that earned the bank higher fees.” These activities involved “unclear fee arrangements” and also allowed advisers, in some cases, to make various changes to a customer’s account without any requirement that they inform the customer, even if those changes result in fees. The Journal’s sources stated that “wealthy clients in Wells Fargo’s private bank were frequent targets.”
Wells Fargo investment managers reportedly “pressured” financial advisers to direct customers with assets exceeding $2 million to the company’s “higher-fee platform,” Investment Fiduciary Services. The bank reportedly had “mandated client quotes” for certain risky alternative investments, even if these were unsuitable for the clients. In particular, according to the report, “Wealthier clients often were placed in the GAI Agility Income Fund or the GAI Corbin Multi-Strategy Fund.” Wells Fargo has a majority ownership of both funds and can “collect management fees” from them.