Income of Wells Fargo's Wealth Management Unit Plunges

#Lifestyle Wealth


Net income of Wells Fargo & Co.'s Wealth and Investment Management business plunged in the first quarter of the year, driven by lower asset-based fees and higher seasonal personnel expenses, according to the bank. Nonetheless, in response to a direct question from an analyst, the firm has no plans to divest itself of the brokerage unit.

The bank's wealth management unit reported net income of $577 million, down 16% from last quarter and 19% from the first quarter in 2018. Total client assets were $1.8 trillion at the end of the quarter, down 2% from a year ago. Average deposits shrunk 14% compared with a year ago, to $153.2 billion. Overall, the bank reported net income of $5.9 billion, compared with $5.1 billion in first quarter 2018, making for diluted earnings per share of $1.20, compared with $0.96.

The bank also continues to lose financial advisors, who often take their clients and assets they manage with them. Wells Fargo reported 13,828 advisors at the end of the first quarter, down 1% from last quarter and 4% year over year. 

Last year, Wells Fargo announced plans to begin servicing independent registered investment advisory firms, which some took as a move to keep assets from leaving the firm. John Peluso, head of First Clearing, the Wells Fargo & Company subsidiary that provides custody services to fee-only RIAs, earlier denied the move was a knee-jerk reaction to the unit's shrinking number of brokers, or out of character for its multichannel wealth management strategy.

During Friday's earnings call, analysts focused on laggard net interest income, the search for a new CEO and an asset cap imposed by the Federal Reserve. But one investment banker asked if the company planned to sell its wealth management business, given that other banks with similar units have recently said they would be interested in growing through acquisitions. 

Chief Financial Officer John Shrewsberry said it's not up for sale and that its attachment to the core banking and mortgage businesses "provides a path to the greatest value creation." He added that changes to it initiated under Jonathan Weiss, the senior executive vice president who leads Wealth and Investment Management, will continue to improve the business. Shrewsberry did not discuss any specific changes during the call.

“If anyone made a proposition that is value maximizing to shareholders, it’s our responsibility to look into that,” Shrewsberry said.

On Tuesday, Wells Fargo sold its Institutional Retirement and Trust business, a unit that serves 7.5 million customers and oversees $827 billion in assets, to Principal Financial Group for $1.2 billion. The acquisition will double the size of Principal's record-keeping assets, making a juggernaut in the retirement space even larger, while diversifying its client base.

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Shedding the Institutional Retirement and Trust unit was a stark contrast to at least one other large wealth manager. Morgan Stanley just reorganized its wealth management business to fold in the recent acquisition of Solium Capital Inc., a stock-plan administration company the bank acquired in February for $900 million. It also has been vocal about seeking to make other acquisitions and adding to its wealth management business to help serve the employees of the more than 1,000 companies it provides retirement accounts and stock options to, as plan sponsors seek ways to help improve their employees’ overall financial health.

A Wells Fargo spokesperson said the sale of the retirement business to Principal reflects Wells Fargo’s strategy to focus its resources on areas where it can grow and maximize opportunities within wealth, brokerage and asset management.

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