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Compliance March 9, 2018
Wells Fargo Advisors SEC Filing Hints at Federal Fiduciary Investigation
The firm says it does not have additional information to share at this juncture beyond what has been noted in a 2017 year-end SEC filing; in that newly emerged document, Wells Fargo Advisors says it has begun an internal investigation into “whether there have been inappropriate referrals or recommendations” made by its advisors, including with respect to rollovers for 401(k) plan participants.
Reported by John Manganaro
News emerged this week that Wells Fargo Advisors is now the subject of federal and state inquiries assessing whether its advisers acted inappropriately in the treatment of wealth and investment management clients, including 401(k) plan participants.
In an explanatory exhibit attached to the firm’s mandatory 2017 year-end Securities and Exchange Commission (SEC) performance filings, the following is spelled out under the heading “Review of Certain Activities Within Wealth and Investment Management”: “A review of certain activities within Wealth and Investment Management (WIM) [is] being conducted by the Board, in response to inquiries from federal government agencies, assessing whether there have been inappropriate referrals or recommendations, including with respect to rollovers for 401(k) plan participants, certain alternative investments, or referrals of brokerage customers to the Company’s investment and fiduciary services business.”
According to the document, the review “is in its preliminary stages.” The firm declined to offer any additional information at this juncture about what the timeframe for an internal investigation may be—or from which federal agencies it has received inquiries. As of Friday afternoon, the Department of Labor (DOL) had declined to comment on whether it was investing Wells Fargo Advisors in this manner. Asked whether it was involved, the Office of the Comptroller of the Currency, which has previously won consent orders against other divisions of Wells Fargo, pointed out that Wells Fargo Advisors is technically part of the bank’s holding company, not actually a part of the bank. The Federal Reserve primarily regulates bank holding companies, but that entity did not immediately confirm or deny involvement.
In any case, it is already clear that at least one state, Massachusetts, is taking its own look into the matter. In a press release shared by Secretary of the Commonwealth William Galvin, it is confirmed that the state has opened an investigation into Wells Fargo Advisors. The investigation “is seeking information related to inappropriate referrals of brokerage customers to managed and advisory accounts, unsuitable recommendations of alternative investments, as well as unsuitable referrals and recommendations in connection with 401(k) rollovers.”
The Massachusetts press release points to the SEC regulatory filing as evidence that wrongdoing may have occurred within its jurisdiction. As part of the investigation, Galvin’s office will be seeking additional information to determine the scope of Wells Fargo’s internal investigation, as well as “reasonable assurances that any Massachusetts investors affected by unsuitable recommendations will be made whole.”
Galvin’s statement continues: “Given the recent retirement savings crisis in America, referrals and recommendations involving 401(k) accounts should be closely scrutinized, and in light of the Department of Labor’s fiduciary rule. Wells Fargo’s recent banking scandal, which involved opening bogus accounts for their customers, leads me to believe that where there is smoke, there’s fire.”