Bank Watch

For Wells Fargo, complaints in a new area: its brokerage business

As Wells Fargo deals with fallout over sales tactics in its branches, complaints are surfacing about practices within a different part of the company: its national retail brokerage business.

Customers and former employees of that unit, Wells Fargo Advisors, have contacted the Observer following last month’s $185 million in government fines against the bank over employees’ opening of fake deposit and credit card accounts. The sources said questionable practices arising from the bank’s aggressive approach to sales also extend into its brokerage operation, which sells everything from mutual funds to annuities to IRAs.

Sources who contacted the Observer include current and former customers and a former Charlotte-based manager for Wells Fargo Advisors. Until July, the adviser business was headed by executive Mary Mack, who is based in Charlotte and now heads Wells Fargo’s community banking operation. Mack has been replaced by a St. Louis executive who reports directly to Charlotte-based David Carroll, head of Wells Fargo’s wealth and investment management division, which encompasses Wells Fargo Advisors.

In fining Wells Fargo last month, regulators said the bank’s employees opened accounts without customers’ knowledge or permission as the workers sought to hit sales goals.

But 81-year-old Newton resident Gwen Braham said she and her husband had a similar experience with an annuity in 2011 transactions involving a Wells Fargo Advisors broker.

Braham said the couple was shocked to learn in July of that year that the broker had liquidated their CDs without their permission so the bank could open an annuity the couple didn’t request. Braham said the couple had never signed paperwork authorizing any of the transactions, which occurred after her husband visited the branch one day to talk about renewing a CD.

“I hit the roof,” she said, noting the liquidated CDs hadn’t matured, which generated fees the bank eventually reversed. “I just can’t believe that they would do that to their customers.”

The complaints about the brokerage unit are the latest sign that the issues surrounding Wells Fargo’s sales tactics might extend beyond the retail bank.

U.S. Sen. David Vitter, a Louisiana Republican, said he is probing how the Wells Fargo practices affected small businesses. Vitter, who chairs the Senate Small Business and Entrepreneurship Committee, has also asked the inspector general for the U.S. Small Business Administration to investigate Wells Fargo’s significant participation in that program.

In a statement, Ohio Sen. Sherrod Brown, the top Democrat on the Senate Banking Committee, said it’s unclear “just how widespread the problems are” at Wells Fargo.

Wells Fargo said in a statement that the company recognizes “the trust our clients place in our advisers and our company means everything; it’s the foundation of our relationship and the way we do business together.”

“It’s important for clients to know that their investment accounts with Wells Fargo Advisors are unaffected by the events associated with the ($185 million) settlement agreements involving Wells Fargo Bank.”

Cross-selling focus

Wells Fargo CEO John Stumpf is famous for pushing employees to get eight products in the hands of each of the company’s customers, a strategy known as Eight Is Great that’s coming under growing scrutiny from regulators and members of Congress since last month’s fine.

For years, cross-selling has also been a top focus within Wells Fargo Advisors.

The bank’s brokerage and wealth-management business reported 10.55 products per household at the end of last year, the latest period for which figures are available.

That’s higher than the bank’s cross-selling figure for its retail banking business, which posted 6.27 products per household at the end of June.

Such prowess at cross-selling has made Wells Fargo the envy of its peers. Testifying before a U.S. House panel last week, Stumpf defended the practice: “We love cross-sell,” he said.

Mack told investors in May there is “still a huge opportunity” for Wells Fargo to begin managing assets for affluent customers who already do business with the community banking unit.

Mack touted an example from earlier this year, when a client went into a Westport, Conn., branch to take money out of a 529 plan college-savings plan.

“The banker said, ‘Sure,’ goes back looks up the client on the system and saw the client had not one but three 529 plans. Each of them had $75,000,” Mack said, according to a transcript. “It is simple math for a banker to know that is a trigger to bring a financial adviser in who is sitting right next door, a financial adviser who might be able to help the client.”

Thirty days later, Mack said, the bank had a $7 million trust, a $1.1 million private bank loan and another $5 million in brokerage assets with the client.

‘Hiring kids off the street’

The former Charlotte-based Wells Fargo Advisors manager, who worked for the company until last year, said Wells’ intense sales culture was felt within the brokerage arm.

“It was just widely known that brokerage was part of ... ‘Eight is Great,’” he said.

“You had goals to meet,” said the former manager, who did not want his name used in order to protect business relationships. “If you didn’t meet those goals, you wouldn’t get your bonus, you would possibly be questioned or ultimately replaced. There was just such a huge turnover in my specific area.”

“There were people who got fired for doing unethical things to make their numbers.”

As of the end of June, the company said it had more than 15,000 full-service financial advisers across the country. Some of those advisers work in branches, which Wells Fargo calls “stores.” Other advisers work in other offices or call centers.

The former manager said he became troubled around 2013 and 2014 as Wells appeared to step up hiring people who had little experience as brokers.

“Let’s just say they would rather get someone in who had worked at Foot Locker, come in, get 30 days to take their (broker’s licensing exam), if they pass it that’s great, train them on the phone for a few weeks and get them selling,” he said.

“It just shows you a mentality of ‘Let’s sell, sell, sell, sell, sell,’” he said. “It was worrisome. Why are they hiring kids off the street?”

The Financial Industry Regulatory Authority, which regulates brokerage firms and brokers, declined to comment.

$5 million loss

Lacy Harber, a prominent 80-year-old Texas businessman, plans to bring national attention to his complaints about Wells Fargo Advisors on Thursday with full-page ads in the Observer, New York Times, San Francisco Chronicle and Dallas Morning News.

Harber’s ads will call for U.S. lawmakers to probe activities of Wells Fargo Advisors, which Harber said cost him millions of dollars in a stock sale last year.

He said he bought $34.8 million in shares of companies that included Apple and ExxonMobil, during a more than 1,000-point plummet in the Dow Jones Industrial Average the morning of Aug. 24, 2015. According to Harber, he was buying the shares on-margin, a common practice in which, generally, investors purchase stocks using a loan from a brokerage firm.

Harber said he had previously traded millions of dollars in stock in a single day with Wells Fargo and had been with the bank and predecessor companies for about 40 years.

So, it surprised him when Wells Fargo told him he needed to immediately wire the bank the full $34.8 million that day for the shares, because the purchase made the bank “nervous.”

Harber maintains he was forced by the bank to just sell the shares, a move that cost him $5 million. Harber said Wells Fargo never explained to him why the purchase worried the bank.

Wells Fargo earned at least $485,000 in brokerage fees from his transaction, Harber said.

“I think it’s run by a bunch of idiots,” Harber said of the bank.

In a statement, Wells Fargo said it is in litigation with Harber and that the bank is strongly defending against his claims. Harber “has chosen to use the current media focus on Wells Fargo as a means to draw attention to his own lawsuit,” the bank said.

“Mr. Harber is a highly sophisticated, experienced investor who routinely made his own investing decisions,” the bank said. “We executed his transactions on a day of extraordinary market volatility that included a 1,000-point drop in the Dow Jones Industrial Average. Mr. Harber’s trades were done on margin. Unfortunately, his trading was affected by adverse market conditions.”

Deon Roberts: 704-358-5248, @DeonERoberts

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