Wells Fargo Moving Past “Knock-On Effects” of Bank Scandal, Looks to Go on Offense
Wells Fargo CEO Charlie Scharf on Wednesday said that the bank, including its wealth management business, is going on the offensive now that “the knock-on effects” from the bad press about the company’s consumer fake-account banking scandals has ebbed.
“We’ve been extremely distracted as a company,” Scharf said at the Bernstein 37th Annual Strategic Decisions Conference. Looking at everyone who works with customers “day in and day out,” they “haven’t really been on offense in any way, shape or form.”
“It’s been defense,” said Scharf, who took over as CEO in October 2019, adding that the company will be “edging” its way toward focusing on growth rather than contending with past problems.
Scharf’s remarks come one week before Wells Fargo’s operating committee, which the bank CEO assembled mostly over the past year by hiring 10 of its 18 members from other companies, meets in person for the first time. They also come as Wells’ Wealth and Investment Management division has been undergoing a multi-year reorganization that has created some uncertainty among some field leadership.
But Scharf has turned a spotlight on the San Francisco bank’s wealth management business in recent weeks and gave some indication of the company’s strategy in an earlier May conference when he said that he expects the division to do a better job of capitalizing on the mass affluent customer base in the consumer bank.
“We have in the consumer bank people who are affluent, not ultra-wealthy, but affluent and have significant amounts of money to invest and we’ve just not taken advantage of the wealth management franchise that we have,” Scharf told an online audience on May 19 at the Wells Fargo Financial Services Investor Conference, according to transcript provided by Sentieo, a financial and corporate research platform.
Wells Fargo’s rivals have seized those types of bank-owned brokerage opportunities, and “done so well,” Scharf added.
Scharf did not identify competitors by name, but its bank-owned wirehouse rivals for years have been promoting closer bank-and-brokerage ties.
At Bank of America and its Merrill Lynch subsidiary, executives have stressed for years now the profitability of cross-selling bank and wealth management customers. Merrill President Andrew Sieg recently touted the parent bank’s client prospecting pool, identifying more than 3 million Bank of America customers with a net worth of over $1 million, more than three times the 850,000 existing clients at his brokerage.
Prior to Wells’ fake account scandal in 2016, it too had pushed for more cross-selling among its divisions, but it stopped reporting in quarterly earnings the number of bank products per wealth customer that year to distance the wealth business from the fallout and aggressive sales culture.
Those ghosts, however, still haunt the company. During Scharf’s May 19 talk, an analyst noted that Scharf had not used the “cross-selling” word specifically and asked: “I just wondered if there’s sensitivity around it?”
“Yes and no,” Scharf replied, noting that the strategy makes sense with “the right controls in place.”
“This isn’t about cross-selling. This isn’t about putting targets or numbers that are necessary,” Scharf said. “We have a limited but important set of products, and it’s about serving customers properly in each one of those.”
To be sure, some of the clean-up work still lingers even after Wells Fargo last year settled for $3 million with government regulators in part to resolve cross-selling claims.
Wells Fargo this year terminated several formerly bank-based advisors after conducting a review of decades-old insurance sales and finding that they had wrongly received referral credits on policies that had been cancelled shortly after they were issued.
It is also still in the process of shuttering its international wealth business and continues to rebuild its sales force, which declined by almost 2,000 net to 13,277 from 15,086 (including several hundred private bankers and bank advisors added to the tally at the end of last year).
In a sign of health, Scharf on Wednesday reported that Wells Fargo has increased its projections for 2021 incremental-revenue related expenses from $500 million to $900 million, largely on the basis of wealth management costs—specifically brokers’ commissions. The cost increases are “a good thing,” Scharf added quickly, “because our revenues are higher, and we like the margins and returns in our wealth management business.”
He also said Wells Fargo would “roll out a new mobile application” by the beginning of 2022.
A Wells Fargo spokesperson didn’t have an answer before press time to questions about whether the new mobile application tools would be available for wealth management businesses but said that the brokerage accounts have been integrated into prior versions of such tools.
-Mason Braswell contributed to this story.