Wells Fargo’s Next Play: The Self-Directed Channel
With an eye on Morgan Stanley’s E*Trade Financial acquisition and Bank of America’s Edge platform expansion, Wells Fargo & Co. mulling its own push into the self-guided channel to capture more assets and next-generation investors, according to internal and external sources.
Wells Fargo is also considering rebranding its WellsTrade platform that offers standard brokerage accounts but has primarily been aimed at existing Wells Fargo Advisors customers and not widely marketed, the sources said.
The strategy could depend on the Federal Reserve lifting a regulatory asset cap it imposed on the bank but would fill a missing piece for Wells at a time when retail trading among younger investors has boomed since the pandemic, analysts said. Drawing in some direct investors could also be a public relations boost for the company since its image has suffered in the wake of negative headlines about the San Francisco bank’s fake account scandal.
“Each of the wirehouses realizes both that their clients have a variety of financial needs, and that new advisor clients have a journey that could start with self-directed,” said Scott Smith, director of advice relationship for Cerulli Associates. “Not being able to serve these needs is essentially forfeiting opportunity – or sending clients to competitors.”
Smith, who said he was not familiar with Wells’ plans, said the brokerage could purchase a business similar to commission-free trading app Robinhood Markets. (For its part, Robinhood has filed for an initial public offering expected in July, and spokesperson declined to comment on the Wells’ manager and analyst speculation.)
A Wells spokeswoman declined to comment on its plans or make executives available citing a quiet period before the company reports second quarter earnings.
In recent public comments, Wells Fargo’s senior executives have stressed the need to buttress the bank’s wealth management business, particularly around mass affluent customers, and even the extra cash available for investing in it.
“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,” Wells Chief Executive Charlie Scharf, who took over in 2019 after running Visa and BNY Mellon, told an online audience in May at a company conference.
Mike Santomassimo, Wells Fargo’s CFO, told an online audience earlier this month during a Morgan Stanley industry conference that the firm has plenty of dry powder, although he similarly stopped short of addressing external opportunities.
“We’ve got tens of billions of dollars in liquidity that we can deploy and so we’re taking that into account,” he said in the context of improving coordination across its various business lines.
In another sign of its ambitions, Wells in December 2020 hired Michelle Moore, a 15-year Bank of America veteran and Boston Consulting Group consultant, to be digital platform leader. Moore, reports to Anther Williams, the bank’s head of strategy, digital platforms and innovation and a Scharf-direct report, and to Barry Sommers, the CEO of Wealth & Investment Management.
Unlike Bank of America or Morgan Stanley, Wells Fargo does not disclose the total assets in the WellsTrade channel. The Wealth and Investment Management division oversaw a total of $2.06 trillion in client assets as of March 30, up 28% year-over-year.
BofA’s Merrill Edge platform manages around $324 billion, up 53% year-over-year, according to first quarter reporting. Morgan Stanley said its self-directed channel has around $880 billion in assets after the additional of 5.5 million client relationships through E*Trade, whose name and branding it has kept since the deal closed in October.
Wells Fargo has stalled on expanding the WellsTrade platform in part because of the potential for a branding conflict with its existing sales force of around 13,400 brokers, according to a manager at the firm’s private client group. The firm also has an offering called Intuitive Investor, which offers technical support and investment advice.
“WellsTrade is heavily underutilized,” one of the Wells management sources said. “There is a feeling that there is an impediment from assets being able to flow freely to the platform from our existing clients. If we had something like E*Trade, people would be drawn to it directly.”
Wells Fargo’s ability to go on “offense” has also been waylaid by the retail bank’s fake account scandals in 2016 and the resulting asset cap from the Federal Reserve, Scharf said at the May conference. In 2018, the Fed implemented a consent order that continues to prevent Wells Fargo from growing its balance sheet above $1.95 trillion, which would likely be an impediment to a large-scale acquisition until the order is lifted, which may not be until 2022 or later.