Wells Fargo & Co., long under heavy pressure from a sales-fraud scandal that erupted in 2016, said in a regulatory filing March 1 that its customer-service woes have extended to its wealth management division.
The San Francisco-based company said in its annual Form 10-K that, following a review of fee calculations within certain fiduciary and custody accounts housed in its wealth management unit, it "has determined that there have been instances of incorrect fees being applied to certain assets and accounts, resulting in overcharges."
The problems include incorrect set-up and maintenance of values linked to certain assets, the company disclosed.
"Systems, operations, and account-level reviews are underway to determine the extent of any assets and accounts affected, and root cause analyses are being performed with the assistance of third parties," Wells said in the filing. It added that the examination is in its preliminary stages and is focused initially on assets that are not publicly traded.
Kathleen Leary, senior vice president and head of communications for wealth and investments, told S&P Global Market Intelligence that Wells is in the process of trying to understand the full extent of the issues.
"Given the complex nature of the accounts involved, we expect it will take some time to fully size and scope the issue," Leary said. "We're working in a way that balances thoroughness in reviewing the complex accounts that make up these client relationships, with the need to timely address any potential issues in those accounts."
Leary declined to identify the third parties assisting with the wealth management review, and she said Wells could not say if a federal authority demanded the review.
But the Wall Street Journal reported March 1 that the U.S. Department of Justice told Wells late in 2017 that the bank needed to launch an independent probe of its wealth management operation after whistleblowers within the bank complained of sales troubles that involved pushing ill-suited products onto customers. Citing people familiar with the matter, the Journal said Wells had hired law firm Shearman & Sterling to carry out the investigation.
The allegations include claims against Wells' brokerage division, Wells Fargo Advisors, the Journal noted. That is significant because the former head of that business, Mary Mack, is the executive that Wells promoted to run and clean up its community banking operation after the bank in September 2016 publicly acknowledged that retail staffers in that business had opened millions of phony accounts.
With additional problems since — including wrongly charged auto and mortgage customers — Wells has struggled to attract new customers, grow revenue and emerge from a long shadow of scandal.
In February, federal regulators issued a consent order against Wells that limits its total assets to the level at which it finished 2017 — just under $2 trillion. The public rebuke requires Wells to prove to regulators that its risk management and governance issues are fully addressed before the order is lifted. Shortly after the order first came down last month, Wells President and CEO Timothy Sloan told investors that he was confident the bank could satisfy regulators' demands and get out from under the order efficiently.
But that was before news of the wealth management probe. FIG Partners analyst Chris Marinac said in an interview that the order is bound to hang over Wells all of this year and into 2019. "It's too big and the problems too visible for this to go away quickly now," Marinac said.
Additionally, in its annual filing, Wells said it is continuing to review other businesses for potential problems.
"This effort to identify other instances in which customers may have experienced harm is ongoing," the bank said, "and it is possible that we may identify other areas of potential concern."
