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Wells Fargo’s Wealth Unit Draws Regulator Scrutiny

March 2, 2018

The intense regulatory scrutiny Wells Fargo’s banking unit has experienced since 2016 following a bogus account scandal has finally reached the company’s wealth management unit, the Wall Street Journal writes.

The company’s board is investigating certain sales practices in the unit following a late 2017 directive from the Justice Department, which was prompted by whistleblowers alleging potential problems, people familiar with the matter tell the Journal. The review aims to determine whether there were inappropriate recommendations or referrals tied to rollovers of 401(k) plans and certain alternative investments or referrals of clients from brokerage accounts to investment and fiduciary accounts, the company disclosed Thursday in a securities filing cited by the paper.

Sources tell the Journal that Wells Fargo hired the law firm Shearman & Sterling for the investigation. The probe is still in “preliminary stages,” according to Wells Fargo’s filing cited by the paper. A Justice Department spokeswoman tells the Journal that the agency doesn’t “confirm, deny or otherwise comment on the existence of an investigation.” Timothy Sloan, Wells Fargo’s chief executive, says in a press release that the company is committed to the review and “when we discover a problem, we are moving to find the root cause and fix it,” according to the paper.

Wells Fargo also disclosed in the same filing that it’s investigating how it calculated fees in certain fiduciary and custody accounts, the Journal writes. In some cases the company apparently applied incorrect fees to certain accounts and assets, which caused overcharges to clients, according to the filing cited by the paper.

Wells Fargo has spent a lot of time in regulators’ crosshairs since September 2016 revelations that its retail bank employees created millions of debit and credit accounts without customer authorization. Wells Fargo Advisors has been shedding reps ever since, except for a small uptick in the third quarter of 2017, but the unit mostly avoided attracting the ire of regulators until the current probe.

Hours after the company revealed its investigation, Jon Weiss, head of the wealth and investment management group, sent a memo to advisors and employees assuring them the firm “will get to the bottom of these issues and resolve them,” InvestmentNews writes.

“Let’s resist any temptation toward cynicism or negativity,” Weiss wrote, according to the publication. “Instead, I encourage you to dig deep, stay positive, believe in each other and the good work we do, serve our clients and lead each other forward.”

The company is also facing a new lawsuit from a former fraud investigator in Portland, Ore., who says in a complaint filed in Oregon’s Multnomah County Circuit Court that Wells Fargo fired him in January for his complaints about “hundreds” of botched fraud examinations, the New York Times writes. Matthew Valles’s suit alleges that when Wells Fargo picked up on signs of potentially fraudulent activity, it often simply closed the accounts instead of investigating them and reporting them to law enforcement as legally required, according to the paper.

By Alex Padalka
  • To read the InvestmentNews article cited in this story, click here.
  • To read the New York Times article cited in this story, click here.
  • To read the Wall Street Journal article cited in this story, click here.