It seems that we may not have yet seen the end of the Wells Fargo accounts scandal. The Justice Department has taken an increased interest in Wells Fargo’s wealth-management unit following whistle-blower claims that the bank’s wealth-management customers have been affected. According to a Wall Street Journal (WSJ) article, the Justice Department ordered Wells Fargo to conduct an investigation into the bank’s own wealth-management business, in response to claims of unfair practices. The investigation into any potential wrong-doing is the first focused on services offered by Wells Fargo outside banking, namely its financial and investment advisory business.

The well runs deep…Or rather, Wells runs deep

While it is the first examination into its wealth-management business, it is only the latest inquiry into the bank’s systemic history of engaging in unfair practices against consumers, uncovered in 2016 as part of an investigation by the Consumer Financial Protection Bureau (CFPB). The CFPB’s investigation revealed that branch employees had created over 2 million fraudulent accounts and services in order to meet unrealistic sales goals imposed by the bank. Thousands of Wells Fargo customers were subject to fees accrued through accounts they had never created and charged for services they had never requested. That discovery resulted in the largest fine ever imposed by the CFPB in the organization’s history, and the aftermath led to an end to Wells Fargo’s sales goals along with the termination over over 5,000 Wells employees and resignation of the bank’s CEO. Things came to a head again in 2017 with more false accounts being uncovered. When the dust seemed to finally settle, the number of false accounts had ballooned from 2 to nearly 4 million, with the bank being ordered to pay back millions in credits and refunds to customers. Additionally, the Federal Reserve placed a series of serious growth restrictions on the bank.

Fed Restrictions

The sanctions imposed by the Fed are some of the most uniquely harsh the central bank has ever set forth. The represent the final order of outgoing Fed-chair, Janet Yellen. In a statement given following the order in February, Yellen’s harsh tone reflects the harsh restrictions set forth:

“We cannot tolerate pervasive and persistent misconduct at any bank and the consumers harmed by Wells Fargo expect that robust and comprehensive reforms will be put in place to make certain that the abuses do not occur again… The enforcement action we are taking today will ensure that Wells Fargo will not expand until it is able to do so safely and with the protections needed to manage all of its risks and protect its customers.”

Under the sanctions, Wells may conduct on-going business like accepting deposits and offering loans, however any other growth strategies have been halted. What this essentially means is an all-out freeze on doing any business that would grow its current $1.95 trillion asset portfolio. And, until The Fed deems that Wells Fargo has ‘cleaned up its act’ – including a C-Suite-level purge – , those sanctions don’t appear to be lifted anytime soon.

What does it mean for Wells Fargo’s wealth-management business?

This is already proving to have serious repercussions, as financial analysts are beginning to slash Well’s investment ratings. It could also majorly effect its wealth-management advisory business. Institutions like Wells Fargo recruit advisors to manage their various wealth-management service offerings. As such, they are not employees of Wells Fargo, but independent advisors contracted through the bank. If Wells Fargo’s wealth-management business looses face in the public eye, advisors are the ones directly affected. This could spell serious trouble for Wells’ advisory recruiters approaching reps. It could also result in an advisor-flight from Wells; those seeking to separate themselves from any hint of scandal. In fact, Wells’ wealth-management business has already been hit with hundreds of millions of dollars in losses from the exits of brokers managing high-dollar accounts.

Have wealth-management customers been affected?

While the initial scandal appeared only to affect Wells’ credit services customers, the WSJ article raises new questions about whether customers of other service-offerings by the bank may have been affected, namely wealth-management customers. According to the WSJ article, the bank initiated an independent investigation of several aspects of its wealth-management business, including that relating to 401(k) and alternative investment plans. The review is still in “preliminary stages”, so remains unclear to what extent customer accounts have been affected. However, the investigation has sparked concerns in the financial industry, especially among advisors. In addition to the Justice Department’s inquiry, Bloomberg also reports that Wells may be facing an investigation by the Securities and Exchange Commission (SEC) to determine whether an in-house, investment services system directed at the bank’s wealth-management customers violated securities laws.

What can wealth-management customers do?

While its currently indeterminate as to what extent this has affected customers, if you have any investments serviced through Wells Fargo you should contact your advisor or Wells Fargo account representative for more information. You should also make sure to review any recent account statements over the past year. This is especially important if you have any alternative investment wealth assets. If you have any 401(k) investments or if you hold any fiduciary or custody accounts with Wells Fargo, you should be aware of all fees assessed on your account(s).

Additional Resources

To report a securities complaint to the SEC, complete this form. To find out more about your investment-loss protection and recovery options, contact our team. You can find out more about this issue as it unfolds and other securities law & investment news from our blog.

Although they sound similar, customer advisory centers differ from call centers in several important ways. Securities firms and investment broker-dealers typically rely on call centers to handle basic customer service issues and administrative functions. They do not provide investment or trading advice, nor do they earn commissions on trades and deals. Customer advisory centers, meanwhile, are call centers staffed by securities professionals. They are able to provide trade and investment advice as well as sell securities services. A customer advisory center is typically designated to clients with:

• Portfolios under $100-250,000
• No current assigned broker-dealer

What Investors Need to Know

Customer advisory centers can be a useful resource for securities firms and investors alike. Securities firms can refer casual investors to a center that can handle general investment questions and services while focusing dedicated broker-dealers and advisors on more diversified or high-level investors. Alternatively, they can help investors facilitate transactions and order services without meeting with advisors. Despite the benefits, customer advisory centers do pose certain risks that investor should know about. Customer advisory centers are generally set-up to offer center brokers incentives for selling certain securities and brokerage services. This may give way to practices that may not be within investors’ best interest. Investors should be wary of:

• Aggressive sales tactics promoting certain products and services
• Attempts to gather irrelevant customer information
• The promotion of “no fee” or “no cost” goods and services
• Information that is misrepresented or omitted in advice or contracts
• Failure to disclose complete cost brackets for goods and services

Investor Resources

For more information on customer advisory centers, check out this FINRA advisory bulletin. If you believe you have received misrepresented information or inaccurate investment advice from a customer advisory center that has resulted in improper fees or investment loss, contact Savage Villoch Law, PLLC to find out potential recovery options.

Consumer Records Left Vulnerable

Customers are left vulnerable when securities brokerage firms leave no protection plan in place for securing consumer records and other broker-dealer data. Fraudsters and financial hackers can access these records and alter or erase them. They can also drain these databases of personal financial information. FINRA prescribes a certain format for regulating consumer records to prevent alteration. FINRA requires the “write once, read many”, or WORM, format for broker-dealer firms to use. According to FINRA’s fine report, the improperly stored records affected millions of consumers. Below is a list of securities brokerage firms included in FINRA’s fine:

• Wells Fargo Securities, LLC and Wells Fargo Prime Services, LLC – $4 million joint-fine
• RBC Capital Markets LLC and RBC Capital Markets Arbitrage S.A. – $3.5 million joint-fine
• RBS Securities, Inc. – $2 miilion fine
• Wells Fargo Advisors, LLC, Wells Fargo Advisors Financial Network, LLC and First Clearing, LLC – $1.5 million joint-fine
• SunTrust Robinson Humphrey, Inc. – $1.5 million
• LPL Financial LLC – $750,000
• Georgeson Securities Corporation – $650,000
• PNC Capital Markets, LLC – $500,000

Many of the securities brokerage firms listed are some of the largest in the country, providing millions of consumers with brokerage and other financial services. By improperly collecting and storing information, these firms leave consumers stuck with the biggest risk; financial liability. Broker-dealer/consumer records contain many vital bits of personal information and other sensitive financial data. If this information is left open to something like alteration, it could mean big trouble for the customer.

Know Your Resources

At Savage Villoch Law, PLLC, it is our mission to protect financial consumers and brokerage service customers. Contact us today if you feel your information was mishandled or for another complaint against your broker-dealer. Visit FINRA’s BrokerCheck to find out everything you need to know about a potential broker-dealer or brokerage firm.

Settling Customer Disputes

Usually, disputes over securities brokerage/trading are settled through arbitration as opposed to traditional litigation. Though arbitration is the primary form of dispute resolution, mediation may also be used as an alternative. In most contract agreements between securities consumers and broker-dealers, arbitrations are written out as the means of dispute resolution and are subject to the governing rules and regulations of the Financial Industry Regulatory Authority (FINRA).

Arbitration

This process differs from traditional litigation in several ways:

• A neutral arbiter oversees the resolution process instead of a judge or jury
• Arbitrations have a limited grounds for appeal
• Arbiters follow FINRA’s Code of Arbitration Procedure instead of legal precedent
• Documents submitted during arbitrations are not generally made publicly available
• Arbitration is usually more timely and cost-efficient than litigation

FINRA Arbitrations

Several different procedures for arbitrations are addressed by FINRA, based on nature of disputes and value of claims.

• Simplified Arbitration
  • Claims valued under $50,000
  • Least costly method
  • One arbiter assigned to dispute
  • In-person hearings not necessary
• Arbiter Selection
  • Claim value $50,000 or less – 1 arbiter
  • Values of $50,000-$100,000 – 1 or 3 arbiter panel
  • Claims over $100,000 – 3 arbiter panel
  • Read FINRA’s FAQ for arbiter selection process
• Securities Firms Using FINRA Process
  • Bats BZX Exchange, Inc., Bats BYZ Exchange, Inc., Bats EDGA Exchange, Inc. and Bats EDGX Exchange, Inc.
  • BOX Options Exchange, LLC
  • Chicago Board Options Exchange (CBOE) and C2
  • IEX Group
  • International Securities Exchange, LLC (ISE), Gemini and Mercury
  • MIAX Options Exchange (MIAX)
  • Municipal Securities Rulemaking Board (MSRB) (a self-regulatory organization for municipal securities)
  • NASDAQ
  • NASDAQ OMX
  • New York Stock Exchange (NYSE)
  • NYSE Amex
  • NYSE Arca
• Customer Dispute Fees
  • Filing fee assessed based on value of claim. Typically $225-$4,000
  • Hearing session fees based on dispute amount and number of arbiters
  • Arbitrations may be subject to other assorted fees (administrative, adjournment, etc.)
• Filing a Customer Dispute
  • Visit the FINRA Office of Dispute Resolution website to find resources and information on filing a claim
  • Customers usually have 6 years from date of occurrence to file a claim, but other statute of limitations may apply
• Finding a Lawyer
  • Though hiring an attorney is not necessary for an arbitration, customers may opt for legal counsel to navigate the process. This requires an attorney skilled in securities disputes. Savage Villoch Law, PLLC has been fighting for clients involved in securities disputes for over 20 years. Contact us today to find out your options in protecting your financial investments.