The Labor Department is examining whether Wells Fargo &
Co. has been pushing participants in low-cost corporate 401(k) plans to roll
their holdings into more expensive individual retirement accounts at the bank,
according to a person familiar with the inquiry.
Labor Department investigators also are interested in whether Wells
Fargo’s retirement-plan services unit pressed account holders to buy in-house
funds, generating more revenue to the bank, the person said.
A new federal investigation is unwelcome news for Wells Fargo, which has
been dealing with an array of regulatory issues over the past two years. Just
last week, it agreed to pay a $1 billion fine over claims of
misconduct in its auto and mortgage lending businesses.
At issue in the Labor Department’s investigation is how Wells Fargo
handles its clients’ retirement savings. Under the Employee Retirement Income
Security Act, entities that serve these accounts are supposed to put their
clients’ interests ahead of their own.
Wells Fargo managers have pressed employees in the bank’s retirement
division to recommend that clients open more expensive individual retirement
accounts when they retire or leave their jobs, according to another person
familiar with the bank’s operation.
The bank gives employees asset retention goals intended to keep these
retirement accounts in-house, this person said, adding that Wells Fargo workers
often generated higher fees for the bank by putting clients into mutual-fund
shares that carried a front-end “load,” or fee.
A Labor Department spokesman didn’t respond to a request for comment.
Its Employee Benefits Security Administration enforces the Erisa law with the
Internal Revenue Service and the Pension Benefit Guaranty Corporation.
There are two types of penalties for Erisa violations. Civil penalties
may include fines or a requirement that an entity change its procedures or make
a payment to a plan beneficiary. Criminal penalties may involve fines as well
In a statement, Wells Fargo said the company is “committed to thorough
reviews of Wealth and Investment Management,” adding: “We are making
significant progress in our work to identify and fix any issues, make things
right, and build a better, stronger company.”
In its annual financial report filed last month, Wells Fargo referred
briefly to new federal inquiries involving practices in its 401(k) plan
The bank said its board is reviewing certain activities to assess
“whether there have been inappropriate referrals or recommendations, including
with respect to rollovers for 401(k) plan participants, certain alternative investments,
or referrals of brokerage customers to the company’s investment and fiduciary
services business”; the review is at a preliminary stage.
The Justice Department and the Securities and Exchange Commission also
are examining the bank’s retirement-plan practices alongside a broader sales
practices probe, people familiar with the matter said.
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.
Wells Fargo’s Institutional Retirement and Trust division offers
record-keeping, trustee and custody services to corporations providing 401(k)
plans to their employees. Among the companies whose 401(k) plans are served by
Wells Fargo are Cardinal Health , Caleres , Inc., a shoe manufacturer, and the Lowe’s Companies , regulatory
Wells Fargo advisers make recommendations for clients on a variety of
platforms with investment options. One of those Wells Fargo platforms for
managed mutual-fund asset allocation includes the bank’s proprietary products
and other offerings. In recent months, Wells Fargo lowered the fees for some of
its 401(k) plan products, current employees said.
Wells Fargo isn’t alone in working to hang onto customer assets in
401(k) plans. Other banks, including Morgan Stanley , have programs aimed at rolling over
existing 401(k) plans into IRAs using proprietary products or third-party
offerings that have revenue-sharing agreements that generate fees to the
firm. Bank of America Corp.’sMerrill
Lynch used to have a similar program but changed it in June 2017 in
anticipation of new DOL rules governing fiduciary duty.
The Labor Department’s investigation is the latest regulatory headache
for Wells Fargo.
Last week, the bank said it had agreed to pay $1 billion to settle with
regulators at the Consumer Financial Protection Bureau and the Office of the
Comptroller of the Currency. The fine centers on the bank’s failure to manage
risk, including its yearslong practice of forcing tens of thousands of
borrowers to buy car insurance they didn’t need as well as improprieties
involving mortgage loan rate-locks.