Wells’ Wealth Profit Climbs Despite Continued Broker Attrition
Earnings at Wells Fargo’s Wealth and Investment Management division soared in the fourth quarter, and client assets climbed, despite a continued decline in broker headcount.
The jump in wealth earnings also reflected an easy year-over-year comparison. In the fourth quarter of 2019, the division booked a $158 million “software impairment expense.” Excluding that one-time charge, the wealth division still reported a 48% jump in quarterly profit from the previous year.
The expense cuts in wealth far exceeded the business’s 4% dip in revenue, which Wells attributed primarily to lower interest income.
The Wealth business accounted for 50% of Wells Fargo & Co.’s total net income revenue in all of 2020, and 20% of its revenue. Corporate profit was eroded by high expenses in businesses such as consumer banking tied to restructuring and remediation efforts in the aftermath of Wells’ 2016 fake account scandal.
While profit in the wealth management business rose, the number of its brokers fell 2% in the final three months of 2020, and was down 6% from a year earlier, to 13,513. The exact number of net departures is unclear since the total includes about 900 “financial and wealth advisors” from outside the core private client brokerage group as a result of a fourth-quarter restructuring.
Thousands of advisors have left Wells since the account scandal was disclosed, and the company has hiked hiring bonuses and payments to headhunters in an effort to replenish its forces.
A Wells spokeswoman said the heavy decline in brokerage count last quarter reflected a seasonal uptick in retirements of advisors who took advantage of the bank’s “Summit” sunsetting program, which pays brokers even after they leave based on the bank’s retention of their clients’ accounts.
Client assets in the wealth division at yearend were a record $2 trillion, up 6% from the end of 2019, due primarily to higher market valuations, the company said. The average Wells Fargo broker generated $1.013 million in annual revenue in the quarter, up 1% from $1.002 million in the year-earlier period.
The revenue figure is one of several new metrics disclosed as part of Chief Executive Charlie Scharf’s new efforts at improving transparency to gain shareholders’ trust. Scharf, who joined Wells just over a year ago, also orchestrated first-time disclosure of capital and efficiency ratios for the wealth division. Its 23.6% return on allocated capital was up 8.7% from the year-earlier quarter, and its efficiency ratio of 81% fell from 93%.
The wealth expense improvements followed layoffs oof a “sizable group” of salaried advisors in the third quarter. The total number of employees in the division fell to 29,515 from 30,818 a year ago.
Wells Fargo & Co. has been shedding what Scharf calls “non-core” business lines, and last week said Wells Fargo Advisors will stop servicing accounts of clients residing outside the U.S. The company is also selling its $603-billion AUM asset management unit to private equity owners and divesting its student loan business, though Scharf said the bank has no further divestiture plans.
“We completed the review of our business and are taking action for those that aren’t core to our business,” he said on a conference call with analysts. “We are focusing on our core scale business.”
Wells has defined more than 250 “efficiency initiatives” to achieve its ambitious cost-cutting goals, and is adding to the list, Scharf said. He declined to put a timeline on reaching cost-cutting goals, other than to say the campaign is a multi-year process.
“It’s like peeling an onion back,” Scharf said on the company earnings call. “Once you get a series of efficiencies, it helps you look at everything else that’s left as well. We’re confident that there will be more that will continue after this multi-year drive.”
Total revenue for the bank fell 10% to $17.93 billion in the fourth quarter, missing analyst estimates of $18.13 billion. Net interest income of $9.28 billion in the quarter came in below the $9.34 billion estimated. Wells took a charge of $1 billion during the quarter for remediation and restructuring.