U.S. Widens Wells Fargo Sales Probe to Wealth Management Unit -- 2nd Update
March 16 2018 - 6:19PM
Dow Jones News
By Emily Glazer
A federal investigation into sales practices at Wells Fargo
& Co. now includes the bank's wealth-management business,
extending the probe beyond the firm's retail-banking unit where the
problems originated, people familiar with the matter said.
The Justice Department and Securities and Exchange Commission
are conducting the investigation into the wealth-management
business, these people said. Agents from the Federal Bureau of
Investigation have been interviewing some wealth-management
employees in the Phoenix area as recently as this week, some of
these people said.
Wells Fargo declined to comment. Officials at the Justice
Department and SEC also declined to comment.
Several U.S. attorney's offices, as well as a bevy of federal
and state regulators, have been investigating Wells Fargo since the
fall of 2016 when the bank disclosed widespread sales-practices
problems. Those included bank employees opening as many as 3.5
million accounts without customers' knowledge or authorization.
Wells Fargo has said it is cooperating with the investigations.
Arizona was one epicenter of Wells Fargo's retail-banking sales
practices problems. Some employees in that region created fake
email addresses using customers' phone numbers to open banking
accounts or opened two accounts for each customer, a practice known
as a "double pack." Some top executives from that region have since
been fired by the bank.
Prosecutors' and regulators' inquiries have largely centered on
Wells Fargo's retail-banking business, one of the largest in the
U.S. by deposits. Late last year, though, the Justice Department
told the bank to conduct an independent investigation into its
wealth-management business after it received reports of problems
there from whistleblowers, The Wall Street Journal reported earlier
this month.
The current investigation by the Justice Department and SEC is
separate from the bank's own inquiry, one of the people familiar
with the matter said. The bank now faces state and federal
investigations into its practices in auto-lending, mortgages,
wealth and investment management and foreign exchange.
The widening of the sales-practices investigation has occurred
despite Wells Fargo's attempts to put the problems behind it by
restructuring different businesses, firing some executives and
refunding customers. Wells Fargo also has faced regulatory censure
for failing to address risk-management issues within the bank that
led to improper customer charges in its auto-lending and mortgage
businesses.
In early February, the Federal Reserve sanctioned Wells Fargo
for failing to put proper risk controls in place, barring the bank
from growing past the $1.95 trillion in assets it had at the end of
2017. The Fed cited "widespread consumer abuses" in its
unprecedented rebuke.
Earlier this month, Wells Fargo disclosed in a securities filing
its independent review into the wealth-management business. At the
time, the bank said it is assessing "whether there have been
inappropriate referrals or recommendations, including with respect
to rollovers for 401(k) plan participants, certain alternative
investments, or referrals of brokerage customers to the company's
investment and fiduciary services business."
The bank's filing also disclosed that it is reviewing fee
calculations within certain fiduciary and custody accounts. The
bank has found instances of incorrect fees applied to certain
assets and accounts that resulted in overcharging customers,
according to the filing.
Chief Executive Timothy Sloan said at that time in a release
that the bank is "committed to a thorough review of many processes"
and reiterated "when we discover a problem, we are moving to find
the root cause and fix it."
Issues flagged to the Justice Department by bank employees
involved, among other things, proprietary bank investment products,
the people familiar with the matter said. These tend to bring in
more fees for the bank because they don't involve third
parties.
Other banks have previously run into problems related to
proprietary products. In 2015, JPMorgan Chase & Co. paid a $307
million settlement to regulators, including the SEC and Commodity
Futures Trading Commission, over charges two of its units failed to
disclose conflicts of interest to wealth-management customers
related in part to such products.
Wells Fargo's wealth and investment management business includes
advisory, brokerage and financial services under Wells Fargo
Advisers. Customers in that business include around three million
mass-affluent households, while its private bank has around 80,000
clients typically investing more than $2.5 million, according to
the bank.
The bank has around 16,500 advisers, with the majority in its
retail brokerage. Wells Fargo doesn't break out financial metrics
for its brokerage division or the private bank, but the wealth and
investment management unit brings in around 10% of overall bank
profits, or $659 million in the fourth quarter of 2017.
Write to Emily Glazer at emily.glazer@wsj.com
(END) Dow Jones Newswires
March 16, 2018 19:04 ET (23:04 GMT)
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