Bank Regulation

Wells Fargo Handling Of Retirement Assets Under Scrutiny

wells fargo

The Department of Labor is examining if Wells Fargo pushed retirement-planning customers into pricier accounts and toward buying more expensive investment funds, generating more fees for itself, The Wall Street Journal reported.

The bank has pressed employees to move clients into more expensive individual retirement accounts when they retired or left a job providing them a 401(k) account. Once moved into an IRA, Wells Fargo would incentivize employees to get clients to invest those assets into Wells Fargo mutual funds or funds that carry a front-end load, meaning fees were immediately paid to the bank from customer assets, the paper reported, citing an unnamed bank source.

Under the Employee Retirement Income Security Act (ERISA), entities that serve these accounts, including Wells Fargo, are supposed to put client interests ahead of their own. A whistleblower has come forward to cooperate with the Labor Department, alleging that the bank has violated its ERISA responsibilities, according to the report. Wells Fargo handles 401(k) accounts for large employers, including Cardinal Health and Lowe’s Companies.

Asset managers focus on retaining investment assets when employees retire or leave a client company as a way to maintain revenue streams from managing the money. Morgan Stanley, for instance, has a program aimed at converting 401(k) accounts into IRAs and making money from revenue-sharing agreements with the mutual funds the money gets invested in, according to the newspaper. The Merrill-Lynch subsidiary of Bank of America changed a similar program it had last year in anticipation of more stringent rules around fiduciary responsibility.

The Labor Department investigation is another in a series of problems for Wells Fargo. Last week, the government fined the bank $1 billion. Regulators found that the bank violated the Consumer Financial Protection Act through the way it ran an insurance program related to its auto loans and how it charged certain borrowers for mortgage interest rate-lock extensions.


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