Wells Fargo Investment Adviser Lawsuit Investigation

Wells Fargo 10-K Discloses Investigation Into Improper Referrals and Recommendations

Three federal regulatory agencies have demanded an investigation into whether Wells Fargo investment advisers made inappropriate recommendations to investors. The advisers may have received bonuses, fees, or other compensation for making these referrals.

Some are wondering whether there will be a class action lawsuit over the conduct of Wells Fargo’s investment advisers.

You may be affected if you:

  • Used Wells Fargo’s services to reinvest your 401(k) retirement funds into an investment retirement account (IRA) or into Wells Fargo’s mutual funds; or
  • Were urged by a Wells Fargo advisor to invest in “alternative investments” or non-standard investments; or
  • Had your Wells Fargo stock broker recommend that you put money into a managed investment account or into a fiduciary account (such as a trust fund).

Did you use Wells Fargo to roll over your 401(k)?

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Department of Labor Investigating Whether Wells Fargo Pushed 401(K) Holders Into Bad Investments

According to NY Times, the Department of Labor is investigating whether Wells Fargo “has been pushing participants in low-cost corporate 401(k) plans to roll their holdings into more expensive individual retirement accounts [IRAs] at the bank.” The Department of Labor is also looking into whether Wells Fargo pressed account holders to invest in Wells Fargo’s in-house mutual funds, which generated more fees for the bank, according to a person familiar with the investigation.

The Department of Labor is charged with enforcing a federal law designed to protect employees’ retirement savings, the Employee Retirement Income Security Act (ERISA). As the NY Times explains, ERISA requires invest advisors who service retirement accounts, such as 401(K)’ s, to “put their clients’ interests ahead of their own.”

But, according to NYT, Wells Fargo managers had “asset retention goals” that employees in Wells Fargo’s retirement division were required to meet, forcing them “to recommend that clients open more expensive individual retirement accounts” (IRAs). Wells Fargo employees also “generated higher fees for the bank by putting clients into mutual-fund shares that carried a front-end ‘load,’ or fee,” reports the NYT.

“A whistleblower has come forward to speak with regulators about Wells Fargo’s IRA rollover activities, according to the person familiar with the inquiry, alleging that the bank breached its fiduciary duties to clients,” says the NYT.

Wells Fargo handles the 401(K) plans for various employers, including Cardinal Health, Lowe’s, and Caleres, a shoe company, regulatory filings show.

Wells Fargo 10-K Discloses Investigation Into Improper Referrals and Recommendations

On March 1, 2018, Wells Fargo disclosed in its 10-K filing with the SEC that “in response to inquiries from federal government agencies,” including the Department of Justice and Securities and Exchange Commission (SEC), the company’s Board of Directors was conducting a “review of certain activities within Wealth and Investment Management (WIM),” one of the company’s investment advisory departments. Wells Fargo disclosed that the investigation was focusing on “inappropriate referrals and recommendations” with respect to “rollovers for 401(k) plan participants, certain alternative investments, or referrals of certain brokerage customers to the Company’s investment and fiduciary services businesses.”

401(k) Rollover: Explained

A 401(k) rollover usually occurs when someone leaves their current employment. They need to roll their retirement funds into a new investment account. They can choose to roll the funds into an IRA or into a new 401(k), such as a new employer’s retirement plan. An “IRA” is a type of investment account that allows people to save for retirement, without having to pay taxes on any investment gains. A 401(k) rollover, done correctly, allows an individual to maintain tax-free or tax-deferred status on their funds, while placing them in a new investment account.

Did Wells Roll Your 401(k) into an IRA or New 401(k)?

People who were urged by a Wells Fargo investment advisor to put money into “alternative investments” may also be impacted. An “alternative investment” is any investment that falls outside the conventional investment types of stocks, bonds, and currency. Types of “alternative investments” include private equity, hedge funds, managed futures, real estate, commodities (such as oil and gold), and derivatives contracts (such as the mortgage-backed securities and credit default swaps that contributed to the 2008 financial crisis).

Urged Toward Non-Conventional Investments?

Stock Broker Referrals to Wells Investment Advisors

Lastly, people may have been improperly referred by their stock brokers to use a Wells Fargo investment advisor or fiduciary. Stock brokers typically make money on the trades that you make by taking a flat fee or percentage of each trade. In contrast, investment advisors often charge an annual fee in order to manage your money and invest it for you. And fiduciaries allow you to put money into an account to be managed for someone else. People often set up trust accounts for their children, and pay a Wells Fargo trustee to manage the funds until their children are older.