Credit card and savings customers may not be the only ones who were misled by Wells Fargo & Co.
Some clients of the bank’s wealth-management division were steered into investments that maximized revenue for the bank and compensation for its employees, according to several people familiar with the unit and documents reviewed by Bloomberg. Those investments weren’t always in the best interests of clients, the people said. They included estates, trusts and loans, according to one of the people and the documents.
Wealth advisers as recently as 2016 were given ambitious quotas and could earn extra pay by steering clients into loans and accounts with recurring fees, said the people, who included one current and five former Wells Fargo advisers. To hit certain goals, some advisers plugged data into financial planning software that they knew would recommend portfolios their clients already owned, two of the people said.
The quotas and incentives driving the wealth unit’s strategy were similar to the inducements that led employees in the bank’s retail business to create roughly 3.5 million potentially bogus accounts, these people said. The scandal over fake accounts, disclosed in September 2016, led to the firing of 5,300 employees and the ouster of the bank’s chief executive officer.
Responding to questions, Wells Fargo acknowledged that the wealth-management unit used such incentives until 2017 but said those incentives didn’t harm clients. The bank is nonetheless reviewing its wealth and investment-management division’s activities, it added.
Any assertion that its past or present compensation plans did “anything other than incentivizing positive client outcomes is simply incorrect,” bank spokeswoman Shea Leordeanu said.
The scrutiny of Wells Fargo’s wealth-management business offers an inside look at how sales incentives are sometimes structured at big financial institutions. These inducements are usually legal and are common among banks, which typically regard them as closely held secrets.
The question for U.S. authorities is whether Wells Fargo, which has already been sanctioned by the Federal Reserve Board over the fake-account scandal, used incentives that either weren’t properly disclosed or breached its duty to clients.
The Justice Department and the Securities and Exchange Commission are investigating whether the unit inappropriately sold clients in-house investments, a person familiar with the probes said. Spokeswomen for the Justice Department and SEC declined to comment.
Internal Probe
Wells Fargo disclosed federal inquiries in a March filing without naming the agencies and said its board was reviewing its wealth-management operations at the government’s request. The bank is examining whether workers made inappropriate recommendations involving 401(k) rollovers, alternative assets, estates and trusts, it added.