Wells Fargo (WFC 1.59%) recently announced the launch of the Wells Fargo Investment Institute (WFII), which is intended to join together Wells' best research and strategy people to bring world-class advice to the company's financial and wealth advisors and clients.
While this sounds like a great idea for the bank's wealth management business, it could have an even greater impact on Wells Fargo's bottom line. Here's why investors should be excited about this latest development, and what it could mean for the future of the bank.
The Wells Fargo Investment Institute
The goal of the Wells Fargo Investment Institute, or WFII, is to bring together the experts from Wells' Wealth, Brokerage, and Retirement, or WBR, division in order to produce the best possible economic and market research and advice. This is intended to help Wells Fargo's advisors better serve their clients, and for the bank's clients to achieve the highest possible investment returns. Basically, it's a restructuring of the investment team in order to deliver the best of WBR to all of Wells Fargo's clients.
It could attract some great customers
In the investing world, one of the most attractive things when shopping around for a brokerage or a financial advisor is whether or not the company offers things that others don't. Low commissions on trades, and widely available research reports like S&P Capital IQ reports, which are available from many major brokerages, are not very good selling points because they are standard features with most firms.
However, proprietary research of a high quality offered to clients of WBR's four lines of business -- Abbott Downing, Institutional Retirement and Trust, Wells Fargo Advisors, and Wells Fargo Private Bank -- could become Wells Fargo's "ace in the hole" to take its advisory and brokerage businesses to the next level.
Since the Wachovia acquisition in 2008, Wells Fargo Advisors' brokerage business has gone from being nonexistent to the third-largest brokerage firm in the U.S. In total, the four lines of business combine for about $1.6 trillion in client assets. And considering Wells Fargo's impressive record of growth in other areas of its business -- mortgages, auto lending, and credit cards, for example -- I wouldn't be surprised if the brokerage took over the No. 1 spot eventually.
It's not just about the wealth management business
In a nutshell, the reason that growing the wealth management business is so important isn't necessarily for the added revenue that new customers will directly produce through their brokerage accounts. The real value is in what else these customers are likely to do.
According to Wells Fargo's Vision and Values report, brokerage and wealth management customers are among the company's most loyal and lucrative. The average Wells Fargo customer's household has about six different products with the bank, including checking/savings accounts, loans, credit cards, insurance products, and others. The average wealth management customer's household has about 10 products with the bank.
When Wells Fargo gets a new brokerage customer, they aren't just increasing their assets under management and, in turn, their fee income and commissions. They are also likely to get another credit card customer, a mortgage client, a checking account holder, and more all at the same time.
This is another example of Wells Fargo's mastery of the art of cross-selling, and it could pay off tremendously for the bank.
