Wells Fargo Irks Some Brokers With Midyear Tweak to Payouts on Advisory Accounts

Wells Fargo Advisors is rolling out a new charge on advisory accounts later this year as part of an overhaul of how it pays brokers on managed money. The change could cost some brokers thousands of dollars per year and will more harshly penalize those who make individual investment selections themselves. 

Starting July 1, Wells will impose an “advisory platform adjustment” of four basis points annually on all advisory account assets, according to a presentation on Tuesday to Wells managers and viewed by AdvisorHub. The fee will be capped at $12,500 per year per advisor and will apply across all three of the firm’s channels, including its core private client group, bank-based advisors and independent Financial Network brokers. 

A broker who has $100 million in advisory assets will be charged $1,041.67 per month until they hit the cap, according to an example provided in the presentation. The fee does not affect how much the customer is charged and could equate to hundreds of millions in revenue when factored across Wells’ $939 billion in advisory assets. 

The new fee is aimed at offsetting money that the firm will lose by making a broader change to how it charges on third-party and in-house managed account programs. Wells currently imposes a flat “manager fee,” typically around 50 basis points, on separately managed account and unified managed account strategies. It pockets the difference between that fee and the actual amount charged by the third-party asset manager such as Nuveen or Alliance Bernstein.

With the mid-year change, Wells will now charge advisors only the third-party management fee and pass the difference on to brokers, which makes SMA and UMS programs more attractive to brokers. 

In an example from the presentation, an advisor is currently credited for 100 basis points of the 150 basis-point account fee, while Wells splits the remainder between itself and the third-party manager. After July, the manager fee will drop to 28 basis points–the fund company’s actual charge–and Wells will credit the advisor for 122 basis points, according to the presentation. 

Wells is also cutting the management fee out entirely on in-house managed account programs so between 10 and 50 basis points of credit will go to advisors, according to the presentation.  

Wells had mulled the changes for several years but held off for fear of agitating advisors, many of whom had been incentivized under the current structure to make investment selections on their own rather than using third-party strategies, according to a former executive who spoke on condition of anonymity. Those brokers will see the sharpest penalties under the new structure, the person said. 

“It creates winners and losers,” said the former executive, who is now with a competitor. “The people who do a lot of SMAs are going to make out well but the people doing FA-directed are not.”

“All FAs aren’t being treated equally,” said a current Wells manager on the West Coast who also spoke on condition of anonymity. “We were behind the competition in the SMA space for a while. We knew we had to fix it, and we finally did.”

The manager said it could be a boon worth hundreds of thousands in additional pay for brokers who built their business around outsourcing investment decisions. 

A Wells spokesperson declined to comment on specific changes outlined in the presentation but said the change will “position us to be more competitive with our peers, deliver numerous benefits for both clients and advisors, and provide flexibility to further improve the program in the future.” 

“This is just another example of the many improvements we have made to make Wells Fargo an easier place for advisors and clients to do business,” the spokesperson said. 

A notice is scheduled to go out to the firm’s 12,000 brokers on April 17, according to the presentation. Clients will be informed on May 15, and their August statements will break out how their annual fee is split between the advisory fee and manager fee. 

The change, portions of which were earlier reported by InvestmentNews, fits with a broader trend of large brokerage firms steering advisors away from handling individual stock selections. Executives see less risk in outsourcing money management and say it frees up time for advisors to spend prospecting and growing their client book. 

The midyear change also comes as Wells’ profit at its wealth division has been sliding and fell 17% year-over-year in the first quarter as expenses outpaced revenue growth, according to the company’s earnings report on Friday.