Will Wells Fargo’s sale of its asset unit strengthen its image?


What would you like to know

  • “Given the scrutiny of the business, this is overdue,” says recruiter Danny Sarch.
  • There is much to debate about the impact of the WFAM sale on the bank, its advisers and its reputation.

Wells Fargo’s recent decision to sell its asset management unit for $ 2.1 billion makes strategic sense for the company, according to industry analysts and recruiters.

“This is part of Wells Fargo’s overall strategy to increase profitability by focusing on core businesses and reducing costs,” said Mark Elzweig, executive recruiter. The deal follows Wells Fargo’s transaction with Principal Financial Group in 2019 “in which it offloaded” its pension and institutional trust business, he noted.

The sale of Wells Fargo Asset Management to private equity firms GTCR and Reverence Capital Partners, along with the announcement last week that the Federal Reserve has approved the bank’s risk management plan, “takes Wells down the road of achieving its goals and boosts farm morale, ”Elzweig told ThinkAdvisor Tuesday in an interview.

Nonetheless, there is still a lot of debate about the positive impact that the sale of WFAM and related efforts will have on the bank, its advisers and its overall reputation.

A “late” move

The deal makes sense beyond how it can benefit company strategy and morale, according to Danny Sarch, president of recruiting firm Leitner Sarch Consultants.

First of all, “making your own products and then selling them has not been fashionable for years in the field of wealth management, due to the perception that this creates a conflict of interest”, did he declare. “Given the scrutiny the company has been subjected to, this is overdue.”

Others, like Andy Tasnady, Managing Partner of Tasnady Associates, agree: “A lot of brokerage firms that presented their own product years ago, with their own special funds,” no longer do, a- he explained.

Portfolio platforms now tend to be “open and you sell access to the best investment ideas in the world, not just those from your own business,” Tasnady said in an interview, adding that some Wells Fargo rivals had earlier decided to sell their asset management divisions.

Another problem is that “the asset management business itself has become quite difficult” with a lot of the money being transferred to exchange-traded funds where there is “a huge compression of fees”, he stressed.

Limited impact on advisors

Representatives registered with Wells Fargo Advisors should not be significantly affected by the bank’s removal of WFAM.

“I’m assuming that all advisors who used these products will have access” to these products even after the sale, “so the practical effect on the individual advisor is negligible,” according to Sarch.

The transaction is expected to be finalized in the second half of 2021, when the new company will be renamed. As part of the deal, Wells Fargo will own a 9.9% stake and will continue to serve as a customer and channel partner.

Removing WFAM may even help advisers in at least one way, according to Tasnady. “It actually helps their credibility when they don’t seem to be launching their own funds,” he said.

Clients tend to be “more sophisticated these days, with access to all kinds of larger amounts of information, so … they would probably look at any type of Wells Fargo fund with a little suspicion” and wonder. if he “is pushed to [them] or [if it’s] really the best option, ”Tasnady explained. “They’re better off strategically without it. There are fewer potential conflicts.

The price to pay

However, Eric Compton, senior equity analyst at Morningstar, said the unit’s $ 2.3 billion valuation (which is different from the sale price and factors in the 9.9% stake that Wells Fargo canned) was “not great and shows that” WFAM “was not the strongest franchise in the minds of potential buyers.


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