In 2015, more advisors than ever are going independent.
A report from the Aite Group shows that independent houses have grown 110%, as opposed to the 15% growth of wire-houses. By 2018, independent channels are projected to take over the wirehouse channels, who will represent 31.3% of wealth assets rather than 41.3% in 2007.
The exodus of financial advisors from wirehouses can be equated to the deteriorating wire-house culture, which is known to serve the financial needs of the corporation rather than the needs of the clients. Culture, in the words of William C. Dudley, President of the Federal Reserve Bank of New York, is the “implicit norms that guide behavior in the absence of regulations or compliance rules”. He cited the importance of banking culture during a speech at the Workshop on ‘Reforming Culture and Behavior in the Financial Service Industry’. Culture, he says, exists in every firm, reflecting the behavior, morality, and mindset of both advisors and management.
The ‘culture’ of a firm remains to be one of the chief complaints of the moving financial advisor, and out of the biggest wirehouses, Wells Fargo continues to be one of the biggest offenders.
This could be equated to the acquiring of Wachovia during the 2008 financial crisis. An immediate culture clash occurred when a new group of employees and management entered the firm, along with the beefing up of the investment banking unit. The growth of Wells Fargo placed them in top ranks among the other big banks, where competition for high sales and revenue takes priority over the servicing of clients. The culture between the bank-minded senior management and client-serving advisors clash, causing many advisors within Wells Fargo to be unhappy. “The problems originate from the culture of the firms,” said Dudley, “And this culture is largely shaped by the firms’ leadership.”
Like a cancer spreading through the body, the culture of the leaders spreads through to mid-level and lower management, even oppressive home office support staff, not simply existing as a ‘top problem’ but permeating throughout all branches of the bank, including branches like the Private Client Group, and even Wells Fargo’s own independent branch, FiNet. Recently, a fiduciary team left Wells Fargo to form Berkely Capital Partners, a firm managing more than $400 million. They’ve expressed that FiNet, even as an independent branch, placed restrictions and limitations that made it difficult to manage money.
As with many bigger banks, daily, monthly, or annual quotas are set in place and must be met by the financial advisors and branch managers. An L.A Times article by E. Scott Reckard cites the ‘Wells Fargo pressure-cooker sales culture’, and consults with several Wells Fargo advisors and branch managers on their experience. Rita Murillo, a Wells Fargo branch manager, spoke about her experience with the firm’s overbearing sales culture. Any employee failing to meet their quota may be required to work unpaid overtime, or on weekends. Many advisors have quoted on feeling ‘trapped’ or ‘oppressed’ by the strict policies and quotas that Wells Fargo implements.
In order to perform to standard, Erick Estrada, a former Wells Fargo personal banker, cited that many branch managers forced unnecessary products onto clients in order to reach their sales goals or opened up multiple accounts.
“High-powered pay incentives linked to short-term profits, combined with a flexible and fluid job market, have also contributed to a lessening of firm loyalty … in an effort to generate larger bonuses,” said Dudley.
The Wall Street Journal recently reported that the cross-selling practices of Wells Fargo are currently under investigation. A lawsuit in May claimed that Wells Fargo employees had mislead customers into purchasing unwanted products, including opening multiple accounts without their permission. Wells Fargo employees from several states have claimed that the high hourly quotas pressured them into fraudulent action.
To top it off, Wells Fargo makes it difficult for financial advisors to potentially move or ensure control over their own practice. The clients belong to the bank rather than the advisor, and if the advisor tries to leave and continue his/her practice elsewhere, the bank will attempt to retain the clients. They make it difficult for the advisor to move his/her practice elsewhere, but also create retention bonuses that can be obtained the longer the advisor stays. This deferred compensation program does not exist for the benefit of the advisor but for the security of the bank. The longer the advisor stays, the harder and more costly it becomes for advisors to leave.
Two of my clients had issues with this culture clash at Wells Fargo. One client had sent in an already pre-approved letter only to endure the compliance department trying to ‘re-approve’ the letter. Another client was trying to make an investment for his client, but kept receiving different answers to the same question from the annuity department with every call that he made. When he finally tried to call and ask for clarification, the correspondent could not respond accordingly and simply and hung up on him.
Throughout this, some of the biggest advisors continue to go independent rather than continuing to tie themselves to an oppressive wirehouse culture. The freedom, flexibility and control that comes with an independent practice shifts the continual move of the big-name advisors away from Wells Fargo, including from their own independent arm, FiNet, where many feel the same oppression. The independent-minded advisors continue their practice with the client in mind, and are free to own their books and their business without the interference of a leeching wirehouse.
The numbers of fleeing advisors, the rise in independents, and the growing resentment for a deteriorating culture could initiate change and reassembling within Wells Fargo. However, change must start from the top in order for it to be fully effective.
“Correcting this problem must start with senior leadership of the firm. The ‘tone at the top’ and the example that senior leaders set is critical to an institution’s culture—it largely determines the ‘quality of the barrel’,” said Dudley, commenting on the way to improve bank culture, “Senior leaders must take responsibility for the solution and communicate frequently, credibly and consistently about the importance of culture. Boards of directors have a critical role to play in setting the tone and holding senior leaders accountable for delivering sustainable change. A healthy culture must be carefully nurtured for it to have any chance of becoming self-sustaining.”
But, perhaps, before any change could be seen, a full transfusion would first be required.
