Mary Mack, Wells Fargo & Co.’s new brokerage chief, plans to put more retail clients into managed accounts as the largest U.S. firms nudge advisers away from picking individual stocks.
Customers at Wells Fargo Advisors now rely more on investment choices made by the bank than by their brokers, a trend that probably will continue, said Mack, who takes control of the unit when Danny Ludeman, 56, retires from the San Francisco-based bank on Jan. 1.
“Many clients will benefit from an advisory relationship, so we have continued to see that mix shift,” Mack, 51, said in an Oct. 30 interview in New York. “The managed side has definitely grown.”
Brokers are losing some influence on investment choices as the largest U.S. banks seek to tighten their grip on clients and make it harder for advisers to take along customers and assets if they defect. Centrally managed accounts with broader holdings also make it less likely that brokers can violate rules against putting customers into single securities that may be unsuitable.
Client funds that go into managed accounts are typically entrusted to money managers at investment firms or in the bank’s corporate office who oversee diversified portfolios. Brokers participate by selecting managers, rather than individual stocks or bonds. Wells Fargo works with managers including BlackRock Inc., Franklin Templeton Investments and MFS Investment Management, Raschelle Burton, a Wells Fargo spokeswoman, said in an e-mail.
Assets in managed accounts at Wells Fargo rose 18 percent to $331 billion last year, an amount still dwarfed by those at Morgan Stanley and Bank of America Corp., owners of the world’s two largest brokerages. Morgan Stanley had $627 billion in managed accounts as of June 30 and Bank of America had $469 billion, according to Boston-based Cerulli Associates.
Wells Fargo, run by Chief Executive Officer John Stumpf, 60, is the biggest U.S. home lender and the nation’s most valuable bank by market value. Expansion of managed-account assets outpaced the increase in total client assets, which rose 8 percent to $1.3 trillion. The wealth, brokerage and retirement unit contributed about 15 percent of Wells Fargo’s revenue through the first nine months and about 7 percent of its profit.
Wells Fargo rose 1.9 percent to $42.51 at 1:51 p.m. in New York. The shares climbed 22 percent this year through yesterday, trailing the 24 percent advance of the 24-company KBW Bank Index.
Managed accounts bolster customer loyalty and foster a willingness to pay for advice, Mack said. Clients typically are charged an annual percentage fee based on client assets, she said.
Clients looking to get full advice and delegate the decisions “are those who are most willing to hire the financial adviser for whatever the fee arrangement is,” Mack said.
Firms want more control after customer complaints about bad investments surged in the wake of the financial crisis. That’s turning brokers into salespeople who promote the firm’s offerings, rather than provide clients expertise on which stocks and bonds to buy, said Brian Rezny, president of Rezny Wealth Management Inc. in Naples, Florida.
“They want their brokers selling,” said Rezny, who manages $100 million. “They don’t want them spending any time on the management side of things.”
Customers filed 1,769 disputes last year about misrepresentation and 1,354 for suitability, according to industrywide data from the Financial Industry Regulatory Authority. That compares with 3,408 and 2,473 in 2009. Some disputes can be counted in both categories.
Wells Fargo doesn’t discourage stock-picking as a strategy as long as it’s best for clients, Mack said.
“It’s a role that has shifted,” she said. “The conversations are less about individual stock positions and more about the clients’ goals.”