Is the worst over for Wells Fargo Advisors?

After six years as a broker with Wells Fargo Advisors, Michael Landsberg parted company with the firm this past summer. And while the prime reason was a chance to start his own registered investment advisory firm, Mr. Landsberg acknowledged that Wells Fargo's tarnished reputation is taking a heavy toll on both clients and brokers. "The brand certainly hasn't helped the last couple years," said Mr. Landsberg, whose team had $675 million in client assets. "Retired people had some concerns. It takes up client bandwidth when you should be talking about their retirement. The things that happened [at the bank] were tough to defend. They were purposeful. Advisers I know are considering leaving — and [are weighing] their options." (Video: How Wells Fargo's scandals have affected its advisers) While some Wells Fargo executives have sought to minimize the impact the bank's scandals have had on their adviser workforce, a close examination by InvestmentNews has documented a massive outflow of hundreds of brokers and billions of dollars in client assets over the past two years. Wells Fargo's competitors claim they continue to receive a steady flow of inquiries about employment from the firm's advisers, who complain that clients are fleeing and client referrals are drying up because of the damage to the firm's brand. Meanwhile, the bank is pinning its hopes on an ad campaign that acknowledges its failures and pledges to make things right with its customers. The question in the marketplace right now is whether the wave of advisers leaving the firm will continue, or has Wells Fargo put the worst of the fallout from the parent bank's misdeeds behind it? Wells Fargo's problems started in September 2016 with the news that Wells Fargo bank employees had secretly created millions of unauthorized accounts in the names of customers without their consent. The bank was fined $185 million and then-CEO John Stumpf resigned abruptly. But the bank's problems didn't stop there. In fact, a number of other scandals have plagued the bank since, and it is dealing with federal restrictions that limit its ability to grow assets. Adviser head count is down sharply. Over the last 21 months, Wells Fargo Advisors has seen a 5.7% decline in its adviser workforce, which fell from 15,086 individuals in September 2016 to 14,226 at the end of June.

Its direct competitors have had much greater stability among their advisers. Over the same period of time, the number of advisers at Merrill Lynch has increased 1.8% to 14,820. Morgan Stanley and UBS Financial Services saw declines, respectively, of 1.4% and 2.1%. Morgan Stanley recently reported it had 15,632 advisers under its roof, with UBS at 6,937. InvestmentNews tracks individual adviser and asset moves, and while it's not a complete list, it shows that activity at Wells Fargo for the period in question was well beyond that of its direct competitors. InvestmentNews was able to identify 226 individuals or teams, working with $52.1 billion in client assets, who have left in the last two years. Among the other wirehouses, Merrill Lynch lost 142 teams or individuals and $40.3 billion in assets, Morgan Stanley lost 104 teams or individuals and $35.4 billion in assets and UBS lost 70 brokers and advisers with $34.5 billion in assets.

InvestmentNews has tallied 44 advisers and/or teams with $9.3 billion in client assets that joined Wells Fargo over the two-year period, a figure that Wells Fargo Advisors executives disputed in interviews and said was low. Those executives, however, declined to cite internal Wells Fargo statistics on adviser teams joining the firm over that period of time, making it difficult to understand the exact damage sustained because of the scandals.

Loss to retirement?

Some Wells Fargo executives have publicly downplayed the bleeding of financial advisers, blaming the loss on retirement rather than movement to other broker-dealers. On a July conference call with analysts, the bank's CEO, Timothy Sloan, brushed aside a question about attrition in the bank's wealth management business. "I wouldn't necessarily describe it as a concern on our part," Mr. Sloan said. "I think what you're seeing is an aging and retirement of the FA population." Other executives acknowledged that advisers were moving, but stressed that the number of brokers leaving the firm hit a high this spring, when a long-term retention bonus period expired for a number of brokers, freeing them to leave without taking a financial hit. "We have had attrition," said Heather Hunt-Ruddy, head of client experience and growth at Wells Fargo Advisors. "It peaked in April and has continued to trend down since then. We continue to be hopeful that the monthly numbers look like they did pre-sales practice issue, or pre-September 2016."

Other executives have talked about the impact of the scandals. "I acknowledge that it's been a challenging period for all of us at Wells Fargo," David Kowach, president and head of Wells Fargo Advisors, said in an email to InvestmentNews, adding that he was also "incredibly optimistic." "In this business, people only do business with people who they know and trust, and there is great value in strong FA and client relationships," he wrote.

'Re-established'

In May, Wells Fargo launched a major branding campaign to win back customer trust. Called "Re-Established," it acknowledges that the bank lost its way, but emphasizes its commitment to "re-establish" its customer relationships. One long-time rep at Wells Fargo said that despite the marketing campaign, which he likes, winning new business in the marketplace, the lifeblood of a broker, had become a problem, especially because of the steady flow of new scandals. In addition to opening bogus customer accounts, other wrongdoing on the part of Wells Fargo has surfaced in its mortgage and auto loan businesses. "We're two years post the announcement of fraudulent accounts, and since then there's been more problems," said the adviser, who asked not to be identified. "While the firm thinks it's all behind us, the reality is clients remember and ask about it. Referrals come to a trickle because clients are embarrassed. "The new ad campaign is very good," he added. "The bank has done a good job to acknowledge the errors and it will take time to restore the image. Unfortunately, the bad news continues to come." (More: Wells Fargo Advisors fined $4 million over complex product sales) In such a huge brokerage network, advisers will obviously have a variety of experiences. Another adviser, who was made available for an interview by Wells Fargo Advisors, said that referrals were not an issue and that his business had benefited since joining Wells Fargo Advisors in March 2015 from Stifel Nicolaus & Co. "My business is all referrals," said the adviser, Ray Palmer, who works in a suburban St. Louis branch. "Initially, after the news [of the bank scandal] broke, I was scared and worried referrals would go to nothing. But they did not stop. Here I sit two years later and it's business as usual."

'Excuse to leave'

"In my branch, one adviser has left," Mr. Palmer said. "I think he used the news as an excuse to leave. The news has created an opportunity for people to make a move if they were thinking about it." Other advisers and executives made available by Wells Fargo Advisors echoed Mr. Palmer's comments and sentiment that the firm is on the rebound. Competitors dispute that assessment, claiming they are still hearing from disaffected Wells Fargo advisers who are looking to jump ship.

"I still think [advisers are] going to keep flying out the door," said John Hyland, managing director of Private Advisor Group, a giant branch office with LPL Financial. "One adviser with a few hundred million in assets recently called us and said, 'I can't stay here. I've had my clients for 20 years, and they are leaving not necessarily because of me, but the brand.'" John Pierce, head of recruiting at Stifel, said he has had similar experiences. "For the first time in my 25-year career, I'm seeing financial advisers coming to us and saying, 'We need to go because our clients will move elsewhere if we don't leave the firm.'"

Who benefits?

Of course, there's good reason for such competitors to keep stoking the fires of discontentment at Wells Fargo. LPL and Stifel, along with Raymond James Financial, have been among the main beneficiaries of Wells Fargo's problems. Of the 226 individuals or teams of recruits identified by InvestmentNews as leaving Wells Fargo in the past two years, LPL has attracted 18% of them, Stifel 16% and Raymond James 23%. Some of those teams were among the largest and most profitable at Wells Fargo. They included Stephen Adler and Mark Levy, whose team managed $1 billion and left for Raymond James over the summer. Also, Joel Talish and Michael Skowfoe, who lead separate teams that each managed $1 billion, left Wells Fargo at the start of last year for HighTower Advisors. None of those advisers returned calls or emails to comment. While they are benefiting from Wells Fargo's problems, competitors such as Mr. Pierce know the flow of recruits will not last forever. "I think Wells Fargo will eventually fix their issues," he said. "But it's just taken longer than anyone expected." Web production by Ellie Zhu