A lot has changed at Wells Fargo in the past 12 months, but ghosts of the bank’s past misdeeds still hover over the wealth unit’s reputation.

Last month, the bank struck a $3 billion settlement to resolve criminal and civil investigations over sales practices and bogus account openings in the community bank division that have besieged its brand since the allegations first arose in 2016. Then, last week, a group of bank employees announced their intention to go to Capitol Hill, saying that their complaints about a persistent toxic culture at the firm have been pushed under the rug.

On Thursday, Wells Fargo Advisors and the independent FiNet unit agreed to pay $35 million to settle allegations of giving bad advice to investors regarding inverse exchange-traded funds. The Securities and Exchange Commission said the wirehouse and independent broker-dealer unit failed to properly train and supervise sales of such products between 2012 and September 2019.

“It’s no fun for them to have it in the press again, but’s the beginning of the end of the trouble spot,” says Bill Willis, president and CEO of the recruiting firm Willis Consulting in Palos Verdes Estates, Calif.

Much has changed at Wells Fargo over the past year. Former CEO Tim Sloan stepped down in March and the bank brought in former BNY Mellon chief Charles Scharf to replace him in October.

After the massive settlement with the Department of Justice and the SEC, company spokespersons for both the corporate headquarters and the wealth management unit stressed to FA-IQ that Wells Fargo had "fully accrued" what it needed to cover the $3 billion hit before Dec. 31.

The bank had already budgeted any resulting spending cuts, which company representatives said should not impact the wealth management unit. The company previously reported it had incurred $166 million in expenses for technology as a result of a fourth quarter “reassessment.”

And now Scharf is looking to hire a new wealth management unit leader. Jon Weiss, who held that role, is moving to a new corporate and investment banking line, where he will be CEO. Weiss will continue in his role as head of wealth and investment management on an interim basis while Wells Fargo searches for his replacement.

Wells Fargo represents about 13,500 advisors and $1.6 trillion in client money within its retail brokerage business. About 1,000 of those advisors work as independent contractors within FiNet, and about $590 billion, or 28%, sits in fee-based accounts, according to data from Distributor Profiles, an FA-IQ sister service.

“Will Wells Fargo continue to be under the microscope? Yes, but there are no problems with its wealth management group,” says recruiter Willis.

The settlement “demystified” the Wells Fargo scandal and made it clear it didn’t touch the wealth management unit, Willis says.

But perhaps the biggest fallout is that the firm’s compliance department annoys FAs more than those of other wirehouses, according to Danny Sarch, president of White Plains, N.Y.-based Leitner Sarch Consultants. “As they recover from the ‘scandal,’ they are now seen to be even more overbearing compliance-wise,” Sarch told FA-IQ, prior to the settlement.

Even before the settlement deal was announced, Scharf last month underscored that Wells Fargo’s past threatens to serve as a prologue for its future and warned of a “bumpy road” ahead.

“You can see that a series of legacy issues meaningfully impacted our results in the quarter,” he told analysts on an earnings call. The bank reported a 53% drop in net income, collecting $2.9 billion during the fourth quarter of 2019 compared to $6.06 billion during the same period one year prior.

“Even excluding the significant items, our results are not as strong as we aspire to,” Scharf said. “There are certainly some areas of success, but the opportunity to improve our results is significant and attainable,” he added.

“We still have much more work to do to put these issues behind us. And our future depends on us doing this successfully," he said.

Scharf said the bank is focused on restoring its brand with clients, regulators and lawmakers. “Ultimately, our actions will dictate when that trust is complete with you, not our word.”

And Scharf said he is not done reorganizing. “I’ve given a clear message inside the company that we have not yet met our own expectations, or the expectations of others,” Scharf told the analysts.

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