Profits and client assets plummeted for Wells Fargo’s wealth management business, a sign of how the coronavirus pandemic and accompanying economic upheaval are damaging company earnings.
Net income for the first quarter tumbled 20% year-over-year to $463 million, Wells Fargo said April 14. Overall wealth management client assets dropped to $1.6 trillion from $1.9 trillion, a 12% decline from the year-ago period.
Wells Fargo cited the sharp drops in equity values and net outflows. In the quarter, the S&P 500 hit a record high in February and then fell by about 30% in March. The virus forced Americans to shelter in place and businesses laid off millions of workers.
The bank did not disclose the size of the net outflows for wealth management in its earnings report and a spokeswoman declined a request to provide it.
Assets dipped across the board in the wealth management unit. Within retail brokerage, advisory assets fell 9% year-over-year to $499 billion. IRA assets also slipped by 9% to $367 billion. In an additional impact from the coronavirus triggered by Fed actions to shore up the economy, net interest income for the bank’s wealth unit plunged by 21% to $867 million. Noninterest income ticked down by 4% to $2.8 billion.
The downturn comes as new leadership tries to reshape Wells Fargo, which has been dogged for several years by regulatory penalties and scandals, including the opening of millions of unauthorized customer accounts. Even though the conduct first came to light in 2016, the firm is still feeling the effects.
In January, federal regulators announced settlements and civil charges against eight current and former Wells Fargo executives, including ex-CEO John Stumpf. In February, the bank agreed to pay $3 billion to settle charges with the Department of Justice. The deferred-prosecution agreement spared Wells Fargo from facing criminal charges.
James Gorman is the first known case of a wirehouse executive contracting the virus.
These and other negative headlines have helped spur many of the firm’s advisors to jump to rivals. Advisor headcount dropped to 13,450 for the first quarter from 13,828 from the year-ago period. Headcount is down about 1,500 advisors since the third quarter of 2016, when Wells Fargo fielded 15,086 brokers.
The bank operates multiple channels, including a wirehouse, an independent broker-dealer, and an RIA custodial business.
A company spokeswoman says 2019 was the firm’s best recruiting year since 2016, and that new hires had double the production of advisors who chose to leave the company. She declined to say how many advisors the firm picked up, but said Wells Fargo is managing headcount for productivity.
“We are focused on having a highly productive group — that doesn’t necessarily mean the largest group,” the spokesperson said in an email. “While we anticipate the number of advisors may continue to decline, that overall number is not a strong predictor of revenue growth.”
