Wells Fargo saw its interest income in its wealth and investment management division fall by $50 million in the fourth quarter, in part from boosting payout rates on cash held in certain advisory accounts.
Wells Fargo said in an earnings report Wednesday that net interest income from wealth and investment management was down by 6% to $856 million in the last quarter of 2024. That, according to a presentation accompanying the release, was "driven by higher deposit costs including the impact of increased pricing on sweep deposits in advisory brokerage accounts, partially offset by higher deposit balances."
Wells Fargo is among many firms under scrutiny from plaintiffs, lawyers and regulators over the rates they pay on uninvested cash balances held in so-called sweeps accounts. A bevy of putative class-action lawsuits filed this past year accuse large wealth managers of sharing with customers far too little of the money they make from "sweeping" this cash over to affiliated and unaffiliated banks — from which it's often lent out or invested. Wells disclosed in a regulatory filing in 2023 that it was responding to Securities and Exchange Commission inquiries into its sweeps policies.
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Reporting on the firm's second quarter 2024 earnings in July, Wells Fargo Chief Financial Officer Mike Santomassimo announced plans to raise rates on certain types of advisory accounts. He then predicted the change would lower Wells' net interest income by $350 million for the year.
Several months later, Santomassimo said in another earnings call that Wells was setting its sweeps rates to mirror what's being offered by money markets, which have been paying around 5%. Many of the lawsuits against Wells and other wealth managers have taken the firms to task for paying far less than what money markets have been returning on cash.
Undented bottom lines
Sweeps rates did not come up Wednesday in a call Wells executives held with analysts. Executives instead directed attention to bottom lines, which were strong both for the wealth unit and the firm as a whole.
The decline in net interest income made hardly a dent on the wealth and investment management division's profits. The division reported $508 million in net income on nearly $3.96 billion in total revenue. Those numbers were up 3% and 8%, respectively, year over year.
Helping to drive those results was a 13% surge in fees from advisory accounts and other sources of noninterest income, which came in at $3.1 billion for the quarter. Of that total, $2.5 billion came from fees on assets in advisory accounts, $539 million from commissions and brokerage fees and $59 million from other sources.
"Strong fee-based revenue growth, up 15% from a year ago, largely offset the expected decline in net interest income," Wells Fargo CEO Charles Scharf said in a statement. Yet those fee-based gains, Wells noted in its earnings report, were partially offset by "higher revenue-related compensation" to advisors.
Plenty of wealth assets to manage
The firm's advisory and brokerage fees were generated on nearly $2.3 trillion in client assets, a figure up 10% year over year. Of those assets, $998 billion was held in advisory accounts (up 12%) and nearly $1.3 trillion in brokerage accounts or as deposits (up 9%).
For all of 2024, Wells Fargo ended with roughly $19.7 billion in net income on $82.3 billion in total revenue from all of its business units. The net income figure was up 3% year over year, while the revenue figure was essentially unchanged.
Predictions for 2025
Looking to the new year, Santomassimo predicted the firm's wealth management division will record $600 million in revenue-related expenses in 2025. That, he said, would be a "good thing" because it would mean the unit was producing more revenue.
Last year, Santomassimo said, "These higher expenses were more than offset by higher non-interest income."
"Actual revenue-related expenses will be a function of market levels with the biggest driver being the equity markets," he added. "Our outlook assumes the S&P 500 will be up modestly from current levels but, clearly, the ultimate performance of the markets is uncertain."
