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Wells Fargo’s FAs Pushed Clients Into Higher-Fee Products, Claim Whistleblowers

July 30, 2018

Wirehouse Wells Fargo’s financial advisors steered the company’s wealth management clients into higher-fee products, spurred on by aggressive sales goals in the unit, according to the claims of over two dozen former employees interviewed by the Wall Street Journal and internal documents reviewed by the paper.

The company paid a $185 million sanction in 2016 following revelations that employees in its retail banking unit opened millions of bogus accounts, but for more than a year Wells Fargo’s wealth management business remained relatively unscathed by the scandal, aside from a small exodus of advisors.

But current and former employees allege to the Journal that, across the unit, advisors sometimes moved clients’ assets into products that were more profitable for the bank. Advisors were apparently able to do so because of unclear fee arrangements and were able to make account changes, which could generate more fees, without notifying the clients, the employees claim to the paper.

Furthermore, Wells Fargo apparently set client quotas for riskier investments often without regard to whether they were appropriate, insist employees and internal documents reviewed by the Journal. Wells Fargo’s managers allegedly also pressured its advisor force to put clients with more than $2 million in assets into a higher-fee platform known as the Investment Fiduciary Services platform, and to invest their assets into alternative-investment funds that were majority-owned by Wells Fargo and thus let the bank earn management fees as well, the paper claims.

Four Well Fargo financial advisors in Arizona sent a letter in September to the Justice Department and the SEC detailing apparent problems in the wealth management unit. The letter prompted the regulators to investigate the unit, according to the Journal.

Wells Fargo recently marked the file of Mahes Prasad, a former regional manager in Arizona, for review for possible “inappropriate referrals or recommendations or whether he failed to supervise any inappropriate referrals or recommendations,” according to a Finra document cited by the paper.

Pasad left the firm earlier this year, the Journal writes.

And in January, four Wells Fargo representatives in Organ County, Calif., sent a formal complaint about problems in the wealth management to the SEC, according to the paper.

Sales targets and payouts in Wells Fargo’s brokerage unit were higher than at its competitors such as Morgan Stanley and Bank of America, the parent company of Merrill Lynch, the Journal writes. Wells Fargo’s advisors had to reach $64,000 in annual product sales for clients in Wells Fargo’s private bank unit and for those on the Investment Fiduciary Services platform with more than $2.5 million in assets, according to the paper. Advisors who fell short of the target lost their spots at Wells Fargo’s top branches, according to the letter sent in September to the SEC, the Journal writes.

Dave Coffaro, who headed the Investment Fiduciary Services platform, was asked to leave the firm earlier in July, people familiar with the matter tell the the paper. Coffaro tells the Journal that his departure was not due to fees or inappropriate sales targets.

A Wells Fargo spokeswoman tells the paper that “all fees are fully disclosed” and the firm is committed to transparency.


She also says not all the firm’s wealthier clients paid the management fees on Wells Fargo’s majority-owned funds and that the firm refunded some of them, according to the paper.

“We have supervisory processes and controls in place,” Shea Leordeanu tells the Journal. “If a team member were to act in a manner not in line with our values and our policies, we would take appropriate action.”

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