Wells Fargo & Co. reported Tuesday its wealth unit took a major hit in the second quarter, with net income dropping 70% year over year and revenues down 10%, as head count continued to erode. The wealth and investment management unit posted net income of $180 million, down 61% sequentially, and revenues of $3.7 billion, down 1% from last quarter.
“This was clearly a very poor quarter for us,” said Charlie Scharf, CEO of Wells Fargo, on the company’s earnings call Tuesday. “Our view of the length and the severity of the downturn has deteriorated” since the first quarter, he said, adding that he doesn’t expect conditions to improve anytime soon.
The wealth unit’s drop in net income was due in part to the parent company’s liquidity issues. Company executives said it took higher allowances for credit losses, which cut across all its divisions. It reported a $255 million increase in allowances for credit losses within the wealth unit. Lower market valuations at the beginning of the quarter were also a culprit.
The lower revenues in the wealth unit were attributed to lower asset-based fee income, lower net interest income and a drop in brokerage transaction fees. The wealth management unit was the only one that could claim a profit for the quarter.
Yet the wealth unit continued to lose advisor head count, coming in at 13,298, down by about 500 advisors from the same period last year and 152 from the first quarter.
Kim Yurkovich, a spokeswoman for Wells Fargo Advisors, said via email that while departures increased in the second quarter, many of those who left were below-average producers, making the head count numbers misleading as they relate to profit generation.
“The productivity of our experienced new hires rose again this quarter to a strong $855,000, which is 1.6x the production of departing advisors,” she said. WFA’s strategy, she continued, which will shape itself out over the next couple years, “is to focus on a highly productive team of advisors, and to manage out underperformers. We anticipate that the number of advisors will continue to decline as we continue this strategy.”
Anil Vazirani is president of Secured Financial Solutions, independent insurance advisor investment advisor rep with a fiduciary obligation and in the financial services industry since 1994. A+ rating with the Better Business Bureau for over a decade and a half, members in good standing with the National Association of Insurance and Financial Advisors.
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