Wells Fargo exec David Carroll on rocky markets: Don’t overreact

This year’s stock market turmoil is leaving many investors wondering what their next moves should be, but one top Wells Fargo executive says a good strategy is to stay the course.

“In the long span of history, volatility is the norm,” David Carroll, the Charlotte-based head of wealth and investment management for Wells Fargo, told the Observer in an interview Thursday.

“Our general advice for investors is to not overreact one way or the other, to stay invested,” he said. “Don’t attempt to time the market or pick a bottom or a top.”

So far this year, turbulence has been the theme for financial markets, stoked by fears about China’s slowing economy and plunging oil prices, which were at 12-year lows this week. The S&P 500, an index of widely held stocks, is down about 9 percent this year.

Carroll spoke to the Observer about the slide in stocks and a range of other topics, including Wells Fargo’s push to grow its wealth and investment management business and the industry’s ongoing adoption of “robo advisers.”

A former Wachovia executive, Carroll, 58, reports to Wells Fargo President and Chief Operating Officer Tim Sloan and is the company’s highest-ranking official based in Charlotte.

Since acquiring Charlotte-based Wachovia in 2008, Wells Fargo has maintained its largest employee base here, but most of its top leaders are based in San Francisco where the company is headquartered.

The Wells Fargo business Carroll oversees gained attention last year when CEO John Stumpf described wealth and investment management as the company’s “biggest opportunity” for growth.

Carroll noted there is fierce competition in the business but says Wells Fargo has room to grow. Currently, Carroll’s operation manages $1.6 trillion in customer assets.

“We have less than 6 percent market share,” he said. “There’s good opportunity for growth.”

Questions and answers have been edited for clarity and brevity.

Q. The stock market has been a roller-coaster. How is that affecting business in your operation?

A. Sometimes in high market volatility, trading goes up as people want to get out of the market. And actually transaction activity is down pretty meaningfully. People have kind of pushed the pause button. Transaction activity has slowed as opposed to spiked, meaning people aren’t headed for the exits. So, this does weigh on our business, because of our $1.6 trillion in client assets, about $500 billion is in managed accounts. And the way we get paid off of that is based on asset levels. So, if asset levels drop, then our revenue drops. So this does have a negative impact.

Q. Some people are predicting more growth in robo advisers (computerized platforms that can give automated portfolio-management advice). Does Wells Fargo plan to offer such a service?

A. You will see us introduce a very low-cost, diversified managed investment product that self-rebalances as a vehicle for not just first-time investors. (The capability will be available when Wells Fargo relaunches its WellsTrade platform later this year.) I think it’s a healthy development for the industry. Because of technology and because of the evolution of products, we and the industry in general can now offer well-managed, diversified investments at a much lower cost, much simpler than we were able to in the past. It’s tempting to think, “Well, this is just for Millennials.” But it’s not. What I want to do is use an automated investment solution as a way to attract and retain customers en route to affluence.

Q. Will robo advisers eventually replace human advisers?

A. Most people fundamentally aren’t very interested in the intricacies of banking, financial, investing, risk management. They still value a relationship with an adviser who can tailor a solution to their unique and individual circumstances.

Q. Why is Wells Fargo focused on growing this business?

A. John’s bullish on this because it’s a big space. It hasn’t consolidated in the way that traditional banking has. We have the scale to be meaningful, and it’s synonymous with greater Wells’ mission, which is to help customers succeed financially. From a shareholder standpoint, this uses very little capital, so it’s a very capital-efficient business, 80 percent fees. It’s low-risk. Why wouldn’t you want to be bigger in this business?

Q. Your fourth-quarter results that came out last week show your segment generated about 10 percent of Wells Fargo’s net income and about 18 percent of revenues. What does your CEO want those numbers to be?

A. Bigger. We don’t divulge sector targets like that.

Q. Fourth-quarter revenue in your segment was flat from a year ago. What are the challenges to growth?

A. When 80 percent of your revenues in some manner are tied to general market assets levels, and the market has a downdraft, then just the simple math would say if we get paid on client assets at period end, and client asset levels have dropped as a consequence of the market, then our revenue’s going to drop. One strength of our business is our loan business was up 15 percent year over year.

Q. What are some of the ways you are expanding the business?

A. We have a partnership that we put in place three years ago with the community bank, our retail bank, to mine for affluent customers who may have their banking with us but have never invested with us. That is beginning to mature, and last year we averaged $1.3 billion a month in new investments. That is an organic-growth vehicle for us.

Q. Any other wisdom you could share with investors during this rocky time for the stock market?

A. In general, we’re encouraging people to stay invested, continue to be diversified, don’t chase safe havens. In the face of a lot of red on the screen and a big downdraft in equity prices, I see some encouraging things. This is normal, if you think about it. The return of volatility’s not necessarily a bad thing. It reminds people that it is a financial market and things can go up and down, and it’s not a bad reminder in the long run.

Deon Roberts: 704-358-5248, @DeonERoberts

By the Numbers

Wells Fargo employs about 265,000 companywide, including about 23,500 in Charlotte. The wealth and investment management segment has roughly 36,000 total employees, with about 2,400 in Charlotte. The division’s biggest hub is St. Louis, with about 5,500.

Deon Roberts