Wells Fargo is betting newly minted RIAs need a chaperone.
The company requires advisors transferring into its new RIA channel from its traditional wirehouse to use a pre-written script — called a "warm letter" — to notify clients of their move to the independent platform, according to John Peluso, president of Wells Fargo's First Clearing.
Though the policy is provisional, it's unusually hands-on for an RIA custodian, and a sign of how the wirehouse is still feeling its way in the independent marketplace. To be sure, competitors TD Ameritrade, Schwab, Fidelity and Pershing all offer guidance or resources in a firm’s departure process when going indie — Wells' approach is more direct.
While advisors and their teams can ask to make tweaks and personal additions to the letter, all changes must be approved by Wells Fargo, according to Peluso. Fidelity requires review of communication that uses its brand or logo, according to the firm.
“The RIAs that we’ve onboarded have come internally from Wells Fargo Advisors. Those advisors are either employees or affiliated with Wells Fargo, so any of their client communication is going to be reviewed and approved by the firm,” Peluso says. There is no script for verbal communication.
Currently, there is no guidance regarding initial written communication for advisors joining the RIA platform who weren't previously affiliated with Wells Fargo.
“We [opted] to launch this program and work with advisors internally primarily for the first year so we could test and learn, and identify if there were any platform gaps that we needed to remedy,” Peluso says.
The first wirehouse to make a try at the RIA space, Wells Fargo has on-boarded four ex-employee practices with $1.4B in assets since January, Peluso says. First Clearing will have added six more practices managing an additional $2.2 billion by the end of this year, he adds.
Once the transition is over, firms are third-party entities and completely independent. They are no longer employees of Wells Fargo, and compliance will be their responsibility, Peluso says.
Much of the new program is still evolving, Peluso says, who notes that the firm intends to take “best practices” from both FiNet and its custodial partner in the platform, TradePMR, in order to develop an official course of action.
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In terms of initial client communication about a transition, FiNet requires
There haven't been many kinks in the platform's launch, according to Robb Baldwin, CEO of custodian TradePMR, which has been a client of First Clearing prior to the partnership. “We’re just trying to add more and more trinkets to the system …. There’s not too far to go,” he says.
Under the new partnership, First Clearing and TradePMR divvy up ticket charges or asset-based fees, which are typically paid for by the end client. Peluso declined to disclose specific pricing numbers.
TradePMR acts as the middle office, providing account servicing and technology. First Clearing acts as the custodian, holding the assets and performing trade executions and clearing services. Advisors have access both to TradePMR’s Fusion technology and First Clearing’s Envision and SmartStation, according to Peluso and Baldwin.
Next year will be a big step for both companies. In the beginning of 2020, Peluso and Baldwin say they will start targeting non-Wells Fargo advisors for new business.
The companies want to have all their ducks in a row before then. There are still decisions to be made, including how they will market themselves to a broader audience and what transitioning will look like for external firms. The two companies have been scheduling regular meetings to discuss pain points and solutions, according to Peluso. In April, they met in Atlanta. This July, they will be meeting in St. Louis.
There still could be one major hurdle: Wells Fargo’s brand.
Since a fake account scandal broke out in 2016, Wells Fargo has
Even companies it works with aren’t entirely immune to the fallout. Some advisors at TradePMR haven’t been thrilled by its growing ties with the tainted brand.
“[TradePMR has] got an ugly tattoo, and I’ve just got to accept it,” says Elliott Weir of III Financial in Cedar Park, Texas, who custodies with TradePMR and is not part of the Wells Fargo RIA program. While he hasn’t lost clients over it, Weir says he would rather TradePMR not be involved with Wells Fargo.
Baldwin acknowledged there have been advisors who have taken issue with the Wells relationship, but says it hasn't caused any significant problems.
“We haven’t really lost anyone over it, or anything like that,” he says. “As I always say: This too shall pass, if it hasn’t already.”
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As for the four Wells advisors who have hopped on board the new independent platform, branding issues haven’t stopped them.
“If I really thought it was some systemic issue, I wouldn’t have decided to go with [Wells Fargo], so I don’t think there’s anything permanent,” says David Hohimer, who became the fourth advisor to join the platform when he moved over his $650 million practice in April.
Hohimer wanted to operate under a fiduciary standard, which he says is better aligned with the RIA model. “If you’re really acting as a true fiduciary, then you should have access to an unbiased product,” he says. “As much as I enjoyed Wells, once you’re on a Wells platform, everything is Wells.”
While he didn’t have to switch clients over from First Clearing, he also kept access to Wells Fargo’s private bank services, such as their asset and credit-lending resources. In addition, his clients' accounts were already set up at First Clearing.
“The transition is easier than the traditional model,” Hohimer says.
Will Wells Fargo and TradePMR be able to attract advisors and teams from other firms to the RIA program next year?
Time will tell, but Peluso and Baldwin haven't determined how much they'll want to grow the platform yet.
“We haven’t set any goals on it,” Peluso says, adding: “What we want to do is compete for advisors that are in motion.”
