January 15, 2021
DW labs Incorporated - stock.adobe.com
Wells Fargo’s Wealth and Investment Management Unit saw earnings soar and reported client assets despite in the fourth quarter a continued decline in its broker headcount.
Net income at the division, which includes its core Wells Fargo Advisors brokerage as well as The Private Bank, Abbot Downing and Wells Fargo Asset Management, jumped 157% year-over-year to $548 million as the firm continued to cut expenses as part of a company-wide, multi-year effort that is aims to shave $8 billion from costs across the San Francisco-based bank.Well’s Wealth division performance also benefited from a $158 million “software impairment expense” that had hampered earnings in the fourth quarter of 2019, the company said, but earnings still rose nearly 48% year-over-year excluding the one-time charge.
Non-interest expenses at the Wealth division fell 17%, outpacing a 4% dip in revenue to $3.8 billion due to lower interest income.
The Wealth business accounted for 20% of the company’s total revenue in 2020 but 50% of its profitability as the bank’s broader earnings were affected by billions in additional costs tied to customer remediation efforts tied to its 2016 bank scandal and restructuring costs.
The rise in profit at WIM came despite ongoing a 2% quarter-over-quarter and 6% year-over-year decline in broker headcount to 13,513 brokers. The firm revised its headcount figures to include “financial and wealth advisors,” which incorporates around 900 advisors that it began merging into the core Wells Fargo Advisors unit in the fourth quarter.
The Wealth division has seen a steady outflow of brokers since its parent company’s fake account scandal came to light in September 2016 despite enhancing bonus offers for advisors and headhunters for introductions to its core private client unit and independent brokerage.
A spokeswoman for the company attributed the quarterly decline to a seasonal uptick in retirements of advisors who opted to leave their client base at the firm through its “Summit” program.
Wells’ salesforce managed a record $2 trillion, up 6% from last year due to higher market valuations, the company said. The average Wells Fargo broker also generated $1.013 million in annual revenue in the quarter, up 1% from $1.002 million one year ago, the company said.
The average revenue was one of several new disclosures that the company made in the quarter as Wells Chief Executive Charlie Scharf, who joined just over a year ago, outlined company-wide effort to increase reporting across its business lines to help investors better compare performance to its competitors as it looks to move out from the shadow of its 2016 fake account scandal.
As part of those disclosures, Wells for the first time also began reporting return on capital and efficiency ratios for the wealth unit as well as total personnel. The WIM division was one of the most profitable of Wells’ five corporate divisions by its 23.6% return on allocated capital and efficiency ratio of 81%.
The Wealth division’s return on capital was up from 8.7% in the fourth quarter last year, and its efficiency ratio, a measure of cost as a portion of revenue, fell from 93 one year ago. The bank’s overall expense ratio worsened to 83% from 81%.
The improvements in profitability at the wealth business came as Wells has been streamlining reporting lines in the division, which is led by J.P. Morgan Chase & Co. wealth executive Barry Sommers. It laid off a “sizable group” of advisors in the third quarter, and total employee count at the division has fallen to 29,515 from 30,818 a year ago.
Its parent bank also has exited “non-core” business lines, including announcing last week that it would no longer serve foreign wealth management clients. The company is also selling its $603-billion AUM asset management unit to private equity owners and divesting its student loan business, although Scharf said that the company did not have any plans for future divestitures.
“We completed the review of our business and are taking action for those that aren’t core to our business,” Scharf said. “We are focusing on our core scale business, these other activities are not consistent with our strategic priorities.”
Wells’ company-wide restructuring was ongoing and aimed to save in excess of $8 billion in costs through more than 250 “efficiency initiatives,” according to a company presentation. Scharf declined to put a timeline on many of the initiatives that were “in progress” but noted that it would be a multi-year process that would likely continue even beyond that initial list of 250.
“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.”
Wells Fargo shares were down 7% as of 11:35 a.m. as the bank reported that total revenue fell 10% to $17.93 billion 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 as the company took a $1 billion charge due to remediation and restructuring.
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January 16, 2021
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Wells' Wealth Profit Climbs Despite Continued Broker Attrition - AdvisorHub
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