Wells Fargo’s wealth management business
Major US banks (XLF) (BAC) are focusing on expanding their wealth management business to offset the negative impact on revenue from low interest rates and muted trading activity. Traditionally, the wealth management business is considered a source of stable revenue. Although the wealth management business does not offer significant margins, it has lower capital requirements than lending or capital markets businesses. Particularly, it boosts banks’ (JPM) valuation.
Wells Fargo sees opportunity in wealth management
Wells Fargo (WFC), like its peers, is focusing on gaining market share in the wealth management business. At the Bernstein 32nd Strategic Decisions Conference earlier this year, CEO Tim Sloan said, “We have about 10% of the deposits in the U.S., but we manage 2-ish percent of the wealth. So the biggest opportunity that we have is with our existing customer base. And so easy to say what does that really mean? One of the items that we’ve highlighted for the last few years has been an effort and a partnership between our retail banking folks and our community bank and then our wealth management folks to refer retail banking customers that would be brokerage customers or wealth management customers to our wealth and investment management group. And we’ve consistently now for the last three or four years referred and closed about $1 billion a month of referrals.”
In the third quarter, Wells Fargo’s wealth management unit recorded profits of $677 million, 12% higher year-over-year. Revenue rose 6% to $4.1 billion.
The fake account scandal did not have a major impact on the wealth management business. In the company’s third-quarter earnings call, Sloan said that “we’ve also seen minimal impacts so far within our Wealth and Investment Management business.”