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Will Wells Fargo's RIA Offering Cannibalize its Advisor Ranks?

By Miriam Rozen February 20, 2019

Wirehouse Wells Fargo recently unveiled the identities of the first two advisors to join its new RIA channel. Both were already advisors within the Wells Fargo organization. But questions remain as to whether this new channel will have broad appeal to broker-dealers looking to move to the RIA model.

As reported first by FA-IQ’s sister publication FundFire, Perry Mattern left the firm’s traditional brokerage channel, Wells Fargo Advisors, to form Denver-based Mattern Capital Management, a $500 million fee-only RIA.

Previously, Carl Schultz, who had managed roughly $100 million as a Wells Fargo broker, announced he was starting Forefront Wealth Management and signing up for WFA’s new RIA channel.

But because both Mattern and Schultz are leaving WFA’s traditional wirehouse, the news of their moves raises questions: Will Wells Fargo only cannibalize its other advisory channels to expand the new RIA channel’s roster, failing with the new RIA strategy to attract new recruits from other firms to its troubled brand?

Wells Fargo management, its advisors and outside recruiters all offer answers to those questions. But their predictions are far from consistent.

Some expect cannibalization. And yet, even if only advisors already branded WFA move to the new channel, such moves will help preserve the parent company’s total advisor tally.

Other observers are more optimistic about the RIA channel’s recruiting impact, even though Wells Fargo isn’t offering any financial incentives for non-WFA advisors choosing its new RIA channel. Those optimists expect the new RIA channel to boost Wells Fargo’s recruiting success across all its channels.

John Peluso certainly counts among the optimists. Peluso is the head of First Clearing, the trade-name for Wells Fargo’s clearing unit. He supervises the team recruiting for the new RIA channel.

“We have been working on the RIA service and custody business strategy for over a year. We are aware of WFA advisors who have raised their hand and expressed interest in the new channel. We appreciate their willingness to be an early adopter and help us build the business. I want to reiterate that we’re open for business and always recruiting for all of our financial advisor channels,” Peluso writes in an emailed statement.

David Greenleigh forecasts that the initial trend of the new RIA channel attracting only WFA-branded advisors may persist. Greenleigh is a partner in the Luts & Greenleigh Group, a Bethesda, Md.-based advisory team that is part of the Wells Fargo Advisors Financial Network, the brand’s channel for independents, also known as FiNet.

From his own FiNet team’s perspective, Greenleigh doesn’t entirely rule out a move to the new RIA channel.

“We always have to know what our options are. I would certainly consider the RIA channel for two reasons: The leadership is terrific and it’s an easy place to move,” Greenleigh, whose team has $400 million under management, says. Specifically, Greenleigh heaps praise on Peluso, who previously supervised recruiting for FiNet and, when doing so, drew advisors from other firms.

From his team’s perspective — or, for that matter, the perspective of any advisor presently part of Wells Fargo’s established advisory channels — a move to the new RIA channel would be relatively painless, Greenleigh says. It would trigger little paperwork or require long explanations to clients, he says.

But Greenleigh expresses skepticism about Wells Fargo’s new RIA channel’s wherewithal to offer custodian services competitive with well-known providers of those services for RIAs such as Fidelity, TD Ameritrade and Pershing. “I can’t see how they can compete,” Greenleigh says. As a result, he predicts it will be hard for Wells Fargo to recruit advisors from outside firms to its new RIA channel.

Cannibalization concerns are not entirely unfounded, says Barbara Herman, a senior vice president with New York City-based recruiting firm Diamond Consultants.

But that may not be an unintended consequence, Herman says. For WFA, the creation of the new RIA channel “clearly was part of a defensive move,” and “partly a measure to stave off attrition,” Herman says.

But Herman also argues, “I don’t think it’s a stretch to believe that the new channel will attract advisors from outside firms.”

Herman bases her cautious optimism on FiNet’s past success recruiting advisors from other firms, which continued even when Wells Fargo’s brand endured the punishing blows of its parent bank’s fake account scandals.

John Peluso

Notably, the significant financial signing incentives FiNet offered recruits bolstered some of its success attracting advisors, while the new RIA channel will not provide any financial support to advisors choosing its service and custody business.

But Herman and other recruiters echo Peluso, suggesting the new channel will thrive. “Advisors like options these days,” Herman says. “That is something that is very meaningful — to preserve options for the future.”

Launching an RIA “may be something an advisor wants to consider five or even 10 years away. They can think ‘If I join WFA as an employee today and, for whatever reason there is a change, I can move to a model that I own my business,'" Herman says.

Mark Elzweig agrees the new RIA channel boosts all Wells Fargo channels in the eyes of advisors thinking about fleeing their own firms.

A recruiter and president of the Mark Elzweig Company in New York, Elzweig says, “Wells Fargo’s new RIA channel will help them recruit advisors from rival wirehouses. Advisors like firms that offer them flexibility in choosing their business model. Advisors who aspire to become RIAs but are not immediately ready to do so can join Wells Fargo knowing that if they qualify, they can go RIA in the future without changing firms.”

Elzweig also discounts concerns over Wells Fargo robbing from one of its channel’s advisors' roster to bolster another channel.

“The cannibalization of Wells Fargo’s existing sales force will be minimal, since they are requiring that prospective RIA practices must be 100% fee based,” Elzweig says.