Eastward Bound: Wells Fargo Absorbs Wachovia’s Advisors

Cover Story - Autumn 2011 | By Andrew Singer

Mary Mack, Wells Fargo Wealth Management

Mack used to run Wachovia’s ‘in-bank’ brokerage unit, Investment Services Group, before that institution was acquired by Wells Fargo three years ago. Wells Fargo has talked recently about acquiring another retail brokerage to expand its wealth advisory business.

‘Overall, our fee-based business continues to grow. This year, there was phenomenal growth in new fee-based business.’

[“In the wealth and retirement business, we are sub-optimized,” Wells Fargo CEO John Stumpf told Dow Jones Newswires in March. “If we could jump a curve with the right deal, that’s great.”]

In the meantime, Wells Fargo has increased fee-based business through its branch system, developing more advice-based relationships, Mack told us in an October interview. FAs have 12 to 15 options on their fee-based platform, including discretionary solutions. In the higher asset areas—the wealth management segment, say—where much of the discretionary money goes, there are many more options, of course.

Selling variable but not many fixed annuities

By contrast, “Our [fixed] annuity business, given the [interest] rate environment, is no longer a big part of our business,” says Mack. She declined to say whether fixed annuities accounted for more or less than 10 percent of total program revenues.

Variable annuity sales, on the other hand, continue to be “constant,” if not growing. Any annuity growth today is on the variable annuity side, says Mack.

No cut-off for FAs

In terms of client segments, $100,000 to $2 million is regarded as the ‘affluent’ segment at Wells Fargo—and the primary focus of the in-bank brokerage program (Wealth Brokerage Services). Above $2 million in investable assets is ‘wealth management.’

If an FA conducts an investment analysis that uncovers more than $2 million in investable assets, an investment manager or a locally based private banker (credit), or even a specialized trust officer, may be called in to meet the client. The financial advisor is not pushed to the sidelines, though. In fact, the advisor remains the client’s principal contact—unless the advisor “stumbles into something so complex” that the advisor feels it is outside of his or her depth. An example of this might be a client who needs to set up a trust for a “special needs” child or a client who needs a customized credit solution. In those instances the trust officer or the private banker would be the relationship manager. The advisor remains part of the team in all circumstances, however.

The biggest growth in “discretionary” solutions at Wells Fargo, not surprisingly, is among HNW clients with more than $5 million in investable assets. They would typically put them together with an investment manager. But even Mack’s advisors who serve the ‘affluent’ segment can offer two to three discretionary options, although these are not “customized,” she says.

What are the most popular ‘fee-based’ products for her in-bank brokers? Mack’s FAs offer several mutual fund wrap options, several managed accounts, and the “discretionary” options. She declined to say which was the largest from a revenue-generating standpoint.

Licensed bank employees

Wells Fargo also makes use of licensed bank employees (LBEs), most of whom have Series 6 licenses. About 2,500 to 3,000 are conventional LBEs. They uncover client investment “needs” and refer those clients to branch-based financial advisors. The bank also has some 1,000 regional-based private bankers that are Series 6 licensed.

The numbers were once higher. Some LBEs who sold annuities in Wachovia branches have become bank branch managers, says Mack. In this role, they’ve been quite “helpful” with coaching and licensing other LBEs.

Even though LBEs once sold investment products at Wachovia, today they only refer investment clients. The thinking is that investment clients are best served by full-time advisors.

Is it even worth licensing LBEs, then? Yes, Mack answers. Wells Fargo counts on its LBEs to identify branch clients’ investment needs. Many of these customers talk to the platform bankers about their need to accumulate money for retirement, for instance. Wells Fargo wants those bankers to pass on that information to the branch-based brokers. Platform bankers who are licensed can share in commissions; this creates another incentive to pass on leads.

A ‘signature process’

Indeed, the needs analysis—often begun by an LBE or other branch banker—is the “signature process” at Wealth Brokerage Services, according to Mack. The LBEs receive ongoing coaching to make sure they can identify client investment needs.

‘Clients have changed.’ The 2008-2009 markets ‘left clients looking for more advice, more value.’

An LBE might ask a client about his or her retirement plans. Does the client have a 401(k) plan? If so, is the 401(k) sitting with an old employer? This could make them a roll-over candidate. What’s the best way to deal with the current 401(k)? The licensed bankers deal in “needs,” Mack emphasizes, not in specific investment products.

The financial advisor is the LBE’s mentor. Every one or two weeks FAs “huddle” with LBEs and talk about identifying prospects, ways to begin a conversation about retirement needs, and other pertinent matters.

There are no hard-and-fast rules with regard to how many stores (branches) an FA might cover, says Mack. In affluent areas, an FA might cover a single branch. In some locales, like the affluent communities of northern or southern California, several FAs might even work out of a single branch. In more rural areas, an FA might cover several branches.

When LBEs make a referral, they receive an asset credit that typically supplements their incentive income (they receive credit for other non-investment referrals, too).

Recruiting new brokers

Where does Wells Fargo find new financial advisors? “Everywhere,” answers Mack. Sometimes licensed bankers are promoted. Sometimes advisors are recruited from other large bank investments programs.

Increasingly, though, FAs have come from wirehouses and regional brokerage houses. This year, a large number came from wirehouses. The bank is attractive to brokers because it also offers clients private banking, customized credit, fiduciary services, and other services. Advisors can also draw referrals from store-based bankers.

A bank program such as Wells Fargo’s gives the financial advisor “a chance to grow,” says Mack, a chance to develop relationships with other “partners,” such as lenders. Many of these new wirehouse FAs are well seasoned —with anywhere from five, 10, even 20 years of industry experience.

Life insurance

Wells Fargo has life insurance specialists who work with HNW clients. Mack’s advisors sell a fair amount of single premium whole life (SPWL) insurance to affluent clients; this has been a growing business, an “increasing source of conversation.”

What about market-linked CDs? This product has generated no significant recent growth because of the interest rate environment, answers Mack; it’s not a big part of the program at present. The program’s focus isn’t really on the mass-market client, she adds.

Mack began her career with First Union National Bank as a commercial lender. She rose to become a regional president in a community bank when First Union merged with Wachovia in 2001. In 2006, she was named president of Wachovia’s Investment Services Group, Wachovia’s ‘in-bank’ brokerage unit, which at that time had 1,200 financial advisors and 2,500 LBEs working out of some 2,000 bank branches.

‘Our [fixed] annuity business, given the [interest] rate environment, is no longer a big part of our business.’

During the Wells Fargo-Wachovia merger, Mack co-led the wealth brokerage business, overseeing the eastern part of the country—the former Wachovia business, primarily. In 2010 she assumed responsibility for business nationwide.

The two brokerage programs—Wachovia and Wells Fargo—were “almost mirror images of each other,” she notes. Both had about 1,400 financial advisors in branches. The integration was basically completed by the end of January 2011.

What was the most challenging aspect of the merger? The transition from Wachovia to Wells Fargo was slow—“a deliberately protracted conversion,” she observes. North Carolina is still in transition. Mack works out of a building in Charlotte that still has Wachovia signage.

The advisors in the East, where the transition has been slowest, have been getting a bit antsy, admittedly. “The Wells Fargo brand is so strong—the advisors can’t wait to utilize the power of the full brand,” she says. (Again, while working for Wells Fargo Advisors they are often sitting in “Wachovia” branches—which can be a bit confusing to clients.)

Clients ‘looking for more advice, more value’

Mack was asked about some of the major changes she’s observed in bank brokerage over the past five years. “Clients have changed,” she says. The 2008-2009 markets “left clients looking for more advice, more value.”

There is more emphasis today on retirement planning, investment planning. Clients tend to ask: “What’s my performance against my goals?” or “What’s my number? What do I need in investable assets to carry me through retirement?”

Earlier, there was more emphasis on tracking performance against some index, like the S&P 500.

Clients are asking other questions, too, like, “Do I want to leave a legacy to the next generation?”

Not all clients are retiring at age 65 these days, either. Some are planning for second careers. They may want to invest in a business. Do they have enough assets to do that?

What is the key to building a successful bank brokerage program? “You really need strong advisors—advisors who are committed to the client relationship, but are also willing to invest in their bank partners”—including LBEs, branch managers, local private bankers, and others, says Mack. In the end, everyone gains if they can work together to meet clients’ investment needs.

Andrew Singer is editor-in-chief and publisher of Bank Insurance & Securities Marketing magazine. He can be reached at asinger@bisanet.org