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8 Investment Fees Every Investor Needs to Understand

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone and is not intended to be a source of investment advice. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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While the focus in investing is often on returns, it’s important for investors to understand the impact of expenses on their investing results.

An investor bulletin published by the Securities and Exchange Commission (SEC) shows the effect of higher expenses on investment returns. They looked at the impact of expenses on a hypothetical $100,000 investment held for 20 years. The SEC assumed a 4.00% annual rate of return, with annual expenses at 0.25%, 0.50% and 1.00%.

Here is the impact of these expense differences on returns:

  • Over 20 years, incurring annual expenses of 0.50% reduced the end value of the portfolio by about $10,000 versus if the annual expenses had been 0.25%.
  • Over 20 years, the portfolio incurring 1.00% in annual expenses had an ending value that was $30,000 less than the same portfolio with 0.25% in annual expenses. According to the SEC’s analysis, this difference in expenses over the 20 years adds up to an additional $28,000 in expenses over this time period. If that money had been available for investment, the investor might have earned an additional $12,000 in returns over this time period.

As you can see, a relatively small difference in the level of expenses incurred by an investor can really add up over time.

There are numerous added costs that investors need to be aware of. These eight common fees and expenses can easily eat into your returns.

1. Expense ratios

Mutual funds and ETFs carry expense ratios that pay for expenses such as administration, trading costs to buy and sell securities held in the fund, and other costs to operate the fund. The expense ratio is calculated by dividing the total operating expenses of the fund by the fund’s total assets.

The returns that investors receive from mutual funds and ETFs are net of expenses. For example, if a fund’s gross return was 10% for the year and its expense ratio was 1%, your net return would be 9% for the period. This is a simplified example as things like your holding period for the fund, investments and distributions during the holding period, combined with the fact that mutual fund accounting is a bit complex all factor in.

What this means is that all things being equal, if you are looking at two funds in the same asset class, the fund with a lower expense ratio would start with an advantage. In the case of an actively managed fund, you will want to look at many other factors beyond expenses. In the case of an index fund, you will want to be sure to compare funds that track the same index such as the S&P 500 or the MSCI EAFE (EAFE stands for Europe, Africa and Far East) index.

2. 12b-1 fees

Some mutual funds carry a 12b-1 fee, which is lumped in as part of their expense ratio. This is considered a marketing fee and is used to compensate brokers, registered representatives or advisors for selling or recommending the fund. These fees are sometimes also used in a 401(k) plan to cover a portion of the plan’s administrative costs and/or to compensate the plan’s outside advisor.

The higher the 12b-1 fee, the higher the fund’s expense ratio will be.

3. Sales loads

A mutual fund load is essentially a sales commission tied to certain mutual funds. Mutual funds with a sales load are usually associated with stockbrokers or registered representatives who are compensated through commissions.

There are two types of loads.

Front-end loads

Front-end loads are a charge assessed at the time that the fund is purchased. They are typically associated with A-shares. The front-end load is deducted from the amount of your money that is ultimately invested in the mutual fund.

As an example, assume the initial investment in a fund is $10,000 and the front-end sales load is 5%. The amount of the sales load would be $500 and the amount invested in the mutual fund is $9,500.

The front-end load goes to compensate the brokerage or advisory firm selling the fund. You may pay these loads in addition to any other fees you are paying for advice. The load reduces the amount invested and ultimately the amount of money you accumulate over time from investing in the fund.

For example, $10,000 invested in a fund on January 1 that earns 10% for the year will grow in value to $11,000 by the end of the year. If only $9.500 was actually invested, the amount you’d have at the end of the year would be $10,450. This would multiply itself over time and the discrepancy in the value of your investment would grow over time.

Back-end loads

Back-end loads have been typically associated with B and C share class mutual funds. B shares have largely gone by the wayside in terms of new sales, but there are certainly some shares out there held by investors.

In the case of B shares, there was no upfront sales charge or load, but the back-end load serves as a surrender charge instead. This means that if you sell the shares prior to the elapse of a set time period, the net proceeds to you from the sale would be reduced by the amount of the back-end load. Typically, these back-end loads decrease over time and disappear altogether at the end of the surrender period.

As an example, if the back-end load was 3% when the shares were sold after holding them for four years, selling $20,000 worth of fund shares would only net you $19,400 after the back-end load was assessed.

C-shares use another form of the back-end load which becomes a level load over time. A typical C-share mutual fund will include a 1% back-end loan that works as follows:

  • There is a level load in the form of a 12b-1 fee, which is generally 1% on the fund. This is part of the expense ratio and typically never goes away as long as you hold the fund.
  • If you sell during the first year after investing, the 1% turns into a surrender charge that is assessed on the proceeds of the sale of the fund.

4. Surrender fees

Surrender fees may be assessed on some annuities and mutual funds. A surrender fee is a percentage of the proceeds if the investment product is sold within a certain period of time.
A surrender period may last for a number of years, with the surrender fee decreasing over time. The purpose of the surrender fee is to discourage investors from selling the annuity or the fund prior to the end of the surrender period.

If a surrender charge of 2% is in place at the time an investor sells shares of a variable annuity worth $30,000, then the proceeds of the sale will be reduced by $600 in this case. This is a direct reduction of the overall return on this investment.

5. Financial advice fees

Fees for financial advice will vary depending upon the type of financial advisor that you work with. There are three basic advice models. However you pay for financial advice, it is still a cost and one that you need to understand and manage.

Fee-only advisors

Fee-only advisors charge a fee for the advice they render. There are no commissions or sales of financial products. Fee-only advisors will typically charge in one of three ways:

  • Assets under management (AUM): Under this scenario, the advisory fee will be a percentage of the investment assets for which the advisor is providing advice. A typical fee might be 1% of assets. If you have $250,000 under advisement with the advisor, then your fee would be $2,500 annually. Typically, the fee would be charged based on the total assets under advisement at the end of each calendar quarter based on the annual percentage. In our 1% example, this would be 0.25% per quarter. Often advisors will scale their AUM fees to be lower for clients with higher levels of assets and vice versa for clients with smaller accounts.
  • Flat retainer fees: Some advisors will charge a flat fee that is not based upon an asset level. They may have different fee levels based on the complexity of your situation or other factors.
  • Hourly or project fees: Some fee-only financial planners and financial advisors provide advice on an as-needed or on a project basis. Their fee may be hourly or on a flat-fee basis for a specific project such as a financial plan or a review of your portfolio.

Commission-based advisors

Commission-based advisors are compensated through commissions from the sale of financial products. This might include sales loads from mutual funds or commissions from the sale of insurance products like annuities. These advisors must sell investment and financial products to get paid. Often the true cost of commissions is buried in the expense structure of the product being sold.

Commission-based advisors have the duty to propose suitable investments to their clients, this is a lower standard than acting in their client’s best interest. Therefore, a hidden cost might be that the product sold to you is not the best one for your situation.

Fee-based or fee-and-commission are both names for advisors who are compensated by a combination of fees and commissions from the sale of financial products. An advisor might produce a financial plan for you for a set fee, then implement their recommendations made in the plan through the sale of products that pay them commissions.

Fee-based and fee-only may sound alike, but they are decidedly different compensation methods and investors should understand how they differ. Fee-based has gained a level of popularity in recent years with the advent of the now ill-fated fiduciary rules.

6. Brokerage wrap fees

A brokerage wrap account is a managed account offered by brokerage firms. They will invest your assets in a fashion that is in line with your situation. The assets in the account are often mutual funds but could include ETFs or individual stocks as well.

Wrap accounts have gained in popularity during recent years as many brokerage firms have moved towards offering fee-based type products.

The wrap-fee is a management fee paid to the brokerage firm for managing the account. Wrap-fees can vary, but a typical range is 0.75% to 3% of the assets invested in the account. On top of that, the account may use mutual funds that pay a fee to the brokerage firm either through their 12b-1 fees or another method.

7. Transaction fees

Transaction fees are fees assessed for buying and selling investments. In addition to front-end loads and surrender charges discussed above, there are other types of transaction fees to be aware of.

  • There may be a cost to buy or sell shares of a mutual fund. This may be assessed at certain custodians for certain funds. For example, Vanguard charges $20 per trade for certain non-Vanguard funds if bought or sold online and $50 if bought or sold by phone.
  • There may also be a transaction fee to buy and sell exchange-traded vehicles such as ETFs or shares of individual stocks. For example, Fidelity offers $4.95 trades for many ETFs and stocks.

Note that transaction fees can vary widely from custodian to custodian, so it is wise to investigate. There are also a number of funds available on an NTF basis meaning there are no transaction costs to buy or sell.

8. 401(k) fees

In some cases, the fees and expenses associated with a company’s 401(k) plan might be assessed all or in part against the plan participant’s accounts. This could include costs for administration, recordkeeping and fees associated with an outside investment advisor for the plan. These costs do have to be disclosed, but make no mistake they are real, and they do reduce your returns within the plan.

Bottom Line

The fees and expenses discussed above are paid in a variety of ways, some not always transparent.

  • Advisory fees may be paid directly by check, they may be billed to your investment account and taken from the assets in the account or they may be paid from 12b-1 fees that are part of the mutual fund expenses.
  • Advisors may be compensated directly from the investments they sell or recommend to you using trailing commissions or other means.
  • Expense ratios directly reduce the net return you realize from investment vehicles like mutual funds, ETFs and variable annuities.

It is important that if you are working with a financial advisor or a broker that you fully understand ALL costs related to working with them and how they will be compensated for the advice they provide.

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What Is a 401(k)?

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone and is not intended to be a source of investment advice. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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A 401(k) is a tax-advantaged savings and investing plan offered by many employers, allowing employees to contribute a portion of their wages to individual accounts intended to be used during their retirement years. However, 401(k) plans are not one size fits all, as they typically come in two types: a traditional 401(k) and a Roth 401(k). Both are effective ways to save for retirement, but diverge in important details, including how they are taxed.

What is a traditional 401(k) and a Roth 401(k)?

The two main types of 401(k) plans are traditional 401(k) plans and Roth 401(k) plans. While the retirement plans share core similarities, their differences diverge in the details.

Traditional 401(k) and Roth 401(k) plans are similar in the following ways:

  • Both are employee-sponsored plans: To participate in either a traditional 401(k) or Roth 401(k), your employer must offer it as an option — you cannot simply shop around and sign up for one on your own. That’s because these are employer-sponsored plans, meaning your employer acts as the plan’s sponsor, and contributions come directly from your paycheck, before you even see the funds.
  • Both allow for employer contributions: One of the biggest benefits of 401(k) plans is that they allow your employer to make contributions to your retirement fund on your behalf, which can ramp up your retirement savings significantly. Your employer may choose to match your contributions either dollar-for-dollar up to a certain amount — such as 5% of your annual salary — or make a partial match up to a certain amount.One concept to be aware of with employer matching contributions is vesting. Employers may require their employees to work at the company for a certain length of time before they actually own some or all of the matching contributions. Any amount you contribute from your own paycheck is yours from the moment it’s withheld.
  • Both have the same contribution limits: Unlike a regular savings account or a taxable brokerage account, you cannot pile as much money as you want into your 401(k) plan. The IRS sets annual limits, and those caps are the same for both traditional 401(k) and Roth 401(k) plans. We hash out the contribution limits for 2020 later in this article.

The biggest difference between traditional 401(k) plans and Roth 401(k) plans is how they are taxed. Here’s how the two plans vary:

  • How contributions are taxed: With traditional 401(k) plans, your contributions are made with pretax dollars deducted directly from your paycheck before any of your payroll taxes take effect. Meanwhile, Roth 401(k) contributions are made with after-tax dollars, meaning taxes are already withheld.
  • How distributions are taxed: With traditional 401(k) plans, withdrawals are taxed as ordinary income. Meanwhile, Roth 401(k) withdrawals are not taxed, so long as they are a qualified distribution, which we flesh out later in this article.
  • How early withdrawals are taxed: One of the defining characteristics of 401(k) plans is that they are designed to be nest eggs for your retirement years — and you generally cannot dip into them any time you want without facing a stiff penalty. Although there are exceptions, if you withdraw funds from a traditional 401(k) before you are 59 ½ years old, you will face a 10% tax penalty on the entire balance withdrawn.With a Roth 401(k), the tax penalty on early withdrawals (those made before the age of 59 ½ or if your account has been open for less than five years) is prorated between your non-taxable contributions and earnings. So, if your Roth 401(k) balance consists of $60,000, with $50,000 from contributions and $10,000 from gains made on those contributions, you will be taxed on only the percentage of your balance that represents your gains — plus a tacked-on 10% early withdrawal penalty, barring a few exceptions.

This chart quickly sums up the tax treatment of traditional 401(k) plans and Roth 401(k) plans:

 Traditional 401(k) Roth 401(k)
Contributions Before-taxAfter-tax
WithdrawalsContributions and earnings are subject to federal and most state income taxes Contributions and earnings of qualified withdrawals are not subject to taxes
Best for...Middle-aged earners who are currently in a higher tax bracket than they will likely be in the futureYounger earners who are likely in a lower tax bracket now than they will be in the future

How does a 401(k) plan work?

If your employer offers a 401(k) plan, make sure you put your contributions to work. Here’s how:

1. Make elective deferrals

With 401(k) plans, you will have to select how much you want to contribute per paycheck — these are called elective deferrals. You select the percentage of income you’d like withheld, and then that amount is deducted from each paycheck and deposited into your 401(k). As explained above, how those contributions are taxed will depend on whether you opt for a traditional 401(k) or a Roth 401(k). While many plans will auto-enroll you at a set contribution percentage, you should review how much you can afford to contribute to maximize any employer match and adjust accordingly.

Even the most ambitious savers are capped at how much they can contribute per year though. For both traditional 401(k) and Roth 401(k) plans, the contribution limits for 2020 are as follows:

2020 Contribution Limits for Traditional 401(k) and Roth 401(k) Plans
Contribution limit$19,500
Catch-up contribution limitAdditional $6,500
Joint contribution limit (employee and employer)$57,000
Overall joint contribution limit (including catch-up contributions)$63,500

2. Invest your contributions

Once your contributions are deposited into your 401(k) account, you have to decide where to invest those contributions. This is a common mistake that many savers make — simply signing up for and contributing to your 401(k) plan is not enough. If you don’t intervene, your plan might automatically keep much of your contributions in cash, where it will sit idly, as opposed to investing it in the market, where it has the potential to grow.

Many 401(k) plans offer a curated selection of mutual funds, ranging from conservative to aggressive, that you must choose from, which are managed and offered by a financial firm. After signing up for your 401(k) and selecting and making your elective deferrals, you have to choose which funds you want your contributions invested in. You can usually make these changes online after signing into your 401(k) account.

Factors to take into consideration when deciding how you to invest your contributions should include:

  • Your risk tolerance
  • Your time horizon
  • Fees associated with the fund

In many cases, you might choose from a number of prebuilt, target date portfolios. These portfolios are typically made up of diversified investments with a certain target date in mind of when you want to retire. Your portfolio is then managed to be either more aggressive or more conservative based on how far away you are from that target date.

3. Don’t make withdrawals until you’re required to

Over time, you might change the rate of your contributions or your investment mix, but for the most part, you should sit back, relax and let your money grow untouched. In fact, even if you wanted to dip into your retirement account before your golden years, you will face heavy penalties if you do.

Typically, you cannot start making withdrawals from your 401(k) until the age of 59 ½. Withdrawals from your 401(k) made before this age are slapped with a tax penalty (the specifics of how those early withdrawals are taxed for both traditional and Roth 401(k) are noted above). There are certain exceptions to this rule, such as for cases of medical or financial hardship.

In addition, you can’t just let your contributions sit there and grow forever. In most cases, you must start taking required minimum distributions (RMDs) from your 401(k) once you turn 72 years old.

How COVID-19 crisis impacts 401(k) plans

To help alleviate the economic damage caused by the coronavirus pandemic, the Coronavirus Aid, Relief and Economic Security (CARES) Act has made many major changes to how 401(k) plans operate in 2020 to make it easier and less expensive to access retirement funds. The main changes for 2020 include:

  • The 10% early withdrawal penalty is waived up to $100,000 for withdrawals made from qualified retirement plans for pandemic-related reasons.
  • The 20% mandatory federal income tax withholding from qualified retirement plans is waived for pandemic-related distributions. Instead, you will be required to pay taxes on those distributions over a three-year period.
  • Required minimum distributions for 2020 are waived.
  • The loan amount you’re able to take from your qualified retirement plan for pandemic-related reasons is doubled to up to 100% of your vested account balance or $100,000, whichever is less.

Why are 401(k) plans a good option for retirement savings?

While you can open a number of saving and investment vehicles to grow the funds pocketed away for your golden years, 401(k) plans offer an array of special advantages:

  • They make it easy to save: By making your contributions before receiving your paycheck, you’re eliminating any temptation to spend those funds instead of saving them. Additionally, many plans will automatically increase the rate of your contributions annually, resulting in a stealthy way to save more. That consistency — coupled with a potential employer match — can result in significant savings over time.
  • They offer tax benefits: Whether you opt for a traditional 401(k) or a Roth 401(k), you’ll enjoy some sort of tax benefit. By contributing to a traditional 401(k) with pretax dollars, you’ll reduce your taxable income for that year. Meanwhile, Roth 401(k) plans give you a tax break in the future, when you might be making more income and find yourself in a higher tax bracket.
  • They can come with you when you change jobs: If you’re leaving your job and the 401(k) plan that comes with it, you don’t have to leave your funds behind. Take your retirement savings with you as a 401(k) rollover, which entails moving your 401(k) funds from your old job’s 401(k) plan over into a new 401(k) plan at your new job. This way your funds aren’t left behind, yet you don’t have to cash out and get hit with a big tax bill.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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Review of Wells Fargo Wealth Management

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone and is not intended to be a source of investment advice. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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Wells Fargo Wealth Management is the financial advisory business of Wells Fargo & Company, one of the largest financial institutions in the United States. Wells Fargo Wealth Management is based in St. Louis but has nearly 13,500 advisors across thousands of bank branches as well as a network of affiliated financial advisors and practices. The division currently has $1.4 trillion in assets under management (AUM), and serves many types of clients, including high net worth individuals.

All information included in this profile is accurate as of May 26, 2020. For more information, please consult Wells Fargo Wealth Management’s website.

Assets under management: $1.4 trillion
Minimum investment: $5,000
Fee structure: Percentage of AUM; hourly charges; fixed fees; commissions
Headquarters location:One North Jefferson Avenue
St. Louis, MO 63103
(314) 875-3000

Overview of Wells Fargo Wealth Management

Wells Fargo Advisors is the investment advisory arm of Wells Fargo & Company. It includes Wells Fargo Clearing Services, composed of advisors in Wells Fargo banks and brokerages, and the Wells Fargo Financial Advisors Network, composed of independently owned firms affiliated with Wells Fargo. Wells Fargo Advisors has more than 13,500 advisors, including those working for both Wells Fargo Advisors Financial Network and Wells Fargo Clearing Services.

Both Wells Fargo Clearing Services and Wells Fargo Financial Advisors Network are wholly owned subsidiaries of Wachovia Securities Financial Holdings, which is a wholly owned subsidiary of Wells Fargo Company. Wells Fargo Company has been an American institution since 1852, when founders Henry Wells and William Fargo founded the company during the San Francisco gold rush.

What types of clients does Wells Fargo Wealth Management serve?

Wells Fargo Advisors has nearly 30 different types of investment programs aimed at serving different types of investors. The minimum account balances vary greatly depending on the portfolio selected, ranging from $5,000 for a robo-advisory account to $5 million for certain customized portfolios.

Wells Fargo Clearing Services has more than 1.4 million clients, including more than 813,000 individuals and nearly 583,000 high net worth individuals. Wells Fargo Advisors Financial Advisors Network has nearly 175,000 clients, including about 96,000 individuals and 73,000 high net worth individuals. The Securities and Exchange Commission (SEC) defines a high net worth individual as someone with at least $750,000 under management or a net worth of more than $1.5 million.

Wells Fargo Advisors also serves thousands of pension and profit-sharing plans and corporations, as well as hundreds of charitable organizations and state and municipal governments. It also works with a small number of banking institutions and insurance companies.

Services offered by Wells Fargo Wealth Management

The firm offers a full suite of financial planning and wealth management services to clients throughout the country. Financial advisors work with clients to create an Envision® Process investment management plan that recommends an asset allocation strategy, but does not take into account tax or estate planning. More holistic financial planning is available to clients with a net worth of at least $1 million from Wells Fargo Clearing Services and $5 million from Wells Fargo Advisors Network.

The firm provides investment management services to clients on both a discretionary and non-discretionary basis.

Here is a full list of services offered by Wells Fargo Advisors:

  • Portfolio management (separately managed/wrap fee accounts; discretionary/non-discretionary)
  • Financial planning
    • Retirement planning
    • Charitable giving planning
    • Education planning
    • Long-term care planning
    • IRA and 401(k) rollovers
    • Divorce planning
  • Brokerage services
  • Retirement plan consulting
  • Selection of other advisors

How Wells Fargo Wealth Management invests your money

Wells Fargo Financial Advisors uses its Envision® Process program to recommend a mix of investments that’s tailored to each client’s current financial picture, future goals, risk profile and time horizon. Clients can select either a non-discretionary program, in which the advisor makes recommendations and the client conducts the transaction, or a discretionary program, in which the advisor buys and sells investments on behalf of the client.

Your financial advisor will work with you to determine which type of advisory program best fits your needs and help you choose from the following:

  • Mutual fund advisory programs: Wells Fargo Financial Advisors’ mutual fund advisory programs typically use research from Wells Fargo Investment Institute to create recommendations for clients.
    • The CustomChoice Program: This program is a non-discretionary investment advisory program in which the advisor recommends a mix of mutual funds. Clients can either accept the recommendations or choose a different mix of funds.
    • The FundSource Program: This is a discretionary program of mutual funds based on a target asset allocation. Advisors may adjust the allocation over time to maintain that target allocation.
  • Financial advisor and client-directed advisory programs: These programs also include investments in funds, but also allow for other types of securities, such as individual stocks, alternative assets and corporate bonds.
    • The Asset Advisor Program:This is a non-discretionary program, client-directed program in which advisors make recommendations for a range of investments, including individual stocks, funds and alternative investments like hedge funds and annuities.
    • Client-directed advisory programs: These programs include Private Investment Management, Fundamental Choice and Quantitative Choice. In these programs, portfolio managers provide investment advisory and brokerage services to clients on a discretionary basis. The programs use research from a variety of Wells Fargo-affiliated firms using various approaches, including fundamental and qualitative research.
  • Separately managed accounts programs: Each avidors in this program uses their own methods of analysis to construct a custom portfolio for you.
    • Personalized Unified Managed Account (UMA) Program: Clients can choose from either a single- or multi-strategy approach to creating a portfolio of managers, funds and individual securities.
    • Private advisor network program: Advisors connect clients to individual managers to oversee their account on a day-to-day basis.
    • Customized portfolios: The portfolio is managed on a discretionary basis based on a strategy via the Wells Fargo Investing Institute or Wells Fargo Bank.

Fees Wells Fargo Wealth Management charges for its services

For investment advisory services, Wells Fargo charges clients based on a percentage of assets under management. The rate varies based on the product and services used, but it is 2% for most programs, though it’s also negotiable and can be higher for certain strategies. Most of the offered investment programs are wrap fee programs, which means that clients won’t pay additional fees for each transaction.

Clients who want holistic financial planning, beyond the Envision® Process service, will pay an additional fee for that service. The amount of the fee depends on the scope of the plan, but it is capped at a fixed fee of $10,000.

Some Wells Fargo Advisors are also registered insurance agents or broker-dealers. That means that they may earn commissions for products that they recommend and sell to you.

Wells Fargo Wealth Management’s highlights

  • Broad accessibility: With thousands of branches throughout the country and hundreds of affiliated advisors (including more than 600 practices connected with the Wells Fargo Financial Advisors Network), most consumers can access a Wells Fargo Financial Advisor in person.
  • Wide variety of programs: Wells Fargo Wealth Management has a variety of programs available for investors at all wealth levels, so there are plenty of options for you to get services suitable for your financial situation.
  • Other banking services available: If you’re looking for a one-stop shop for all of your financial needs, a financial behemoth like Wells Fargo may fit the bill. In addition to investment help, Wells Fargo banking clients can also get assistance with loans or cash management.

Wells Fargo Wealth Management’s downsides

  • High fees: With fees starting at 2% for its investment management programs, Wells Fargo Wealth Management fees are higher than the industry average of 1.17%, according to a 2019 study by RIA in a Box. However, it is worth noting that the firm says its rates are negotiable.
  • Potential conflicts of interest: Since some Wells Fargo advisors earn commissions for the sale of securities or insurance products, they may have an incentive to make such recommendations. This creates a potential conflict of interest as advisors may be financially incentivized to make certain recommendations over others.
  • No holistic financial planning offered: While the Envision® Process platform does allow clients to forecast their wealth and track their progress toward goals like retirement, it does not take into account factors like taxes or insurance.
  • Misconduct allegations: There have been allegations of misconduct within the wealth management division at Wells Fargo. See more on the firm’s disciplinary disclosures below. Wells Fargo & Company has also been the subject of numerous scandals since news broke in 2016 that the bank had been opening accounts on behalf of customers who had not asked for them. The company has gone through three CEOs and lost more than 1,500 advisors since the fake-account scandal became public.

Wells Fargo Wealth Management disciplinary disclosures

The SEC requires registered investment advisors to disclose whether the firm, an employee or an affiliate has faced disciplinary actions relevant to their advisory business. Wells Fargo Wealth Management has faced multiple such instances within the last decade, many of which the firm settled by paying fines without admitting or denying the charges.

Disclosures include:

  • Wells Fargo Wealth Management was among dozens of firms that voluntarily agreed to repay clients whom they had put into higher-priced mutual fund share classes without adequately disclosing that there were lower-cost alternatives available. In 2018, as part of the agreement, Wells Fargo repaid $17.3 million and promised not to commit further violations.
  • The firm allegedly failed to adequately store electronic records of customer accounts and communications. In 2016, Wells Fargo agreed to a censure and fine, and paid $1.5 million in connection with the allegations.
  • Wells Fargo Wealth Management allegedly failed to properly implement and supervise systems for entering customer reports. In 2016, the firm agreed to a censure and fine, and paid $1 million in connection with the allegations.
  • The firm allegedly failed to properly verify the identity of clients with new accounts when entering them into their system. In 2014, the firm agreed to a censure and paid a $1.5 million fine in connection with the allegations.
  • Wells Fargo Wealth Management allegedly failed to maintain proper procedures in connection with the sale of exchange-traded funds (ETFs). In 2012, the firm agreed to a censure and paid $2.1 million in connection with the allegations.

Wells Fargo Wealth Management onboarding process

To start working with Wells Fargo Wealth Management, you can either call the firm at (866) 224-5708 or find the office nearest to you using the Find an Advisor tool on the company’s website.

You’ll then work with the advisor to go through the firm’s Envision® Process of planning, which will help your advisor tailor a portfolio to your financial situation. You have access to your Envision® Process plan 24/7 and can contact your advisor at any time if you fall out of your “Target Zone.”

Wells Fargo recommends that clients and advisors connect at least annually. Advisors will communicate with clients via email, phone or in person — whichever works best for you.

Is Wells Fargo Wealth Management right for you?

Wells Fargo Wealth Management may appeal to many potential investors, given the firm’s broad geographic footprint and portfolio offerings for investors at all levels. That makes it a potentially good choice for investors looking for a local financial advisor without a very high minimum investment.

However, many of the firm’s advisors earn commission on the sale of certain financial products, so it’s important to ask your advisor whether they’re benefiting from any recommendations. You also should take note of the firm’s higher than average fees, limited financial planning services and disciplinary history. Before choosing an advisor, be sure to research a few firms and interview potential advisors to make sure you’re selecting the one that’s the best fit for you.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.