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February 2, 2021

Wells Fargo offshore exit offers substantial potential AuM

By GlobalData Financial

Wells Fargo announced early in January that it was exiting the offshore wealth management market to focus on US resident clients. While the US retail banking giant has only a tiny fraction of its client assets under management (AuM) derived from offshore business, it would be a major boost for any bank looking to grow in the offshore wealth market, particularly for those with interest in Latin America.

The major US bank’s private wealth management arm has been ailing in recent years, with negative net new money in 2018 and 2019 along with a rising cost-to-revenue ratio. It is not surprising that the bank was looking at ways to trim costs, and the offshore wealth management sector does carry with it added regulatory burden and risk. Moreover, the scandal-scarred bank would undoubtedly be keen to avoid any further reputation risk from a relatively high-risk line of business like offshore wealth management. The bank’s account fraud scandal at its Community Bank (retail banking arm) has contributed to its poor net new money figures.

Indeed, offshore wealth management has only really been a sideline for Wells Fargo. Only 330 of its 13,512 wealth advisers were designated international advisers in 2019. This doesn’t mean its offshore business is inconsequential, however. Those 330 international advisers could account for up to $5.86bn in AuM, based on the company-wide averages. Already, many US wealth boutiques are expressing interest in hiring stranded advisers.

However, Wells Fargo could also tempt other major international private wealth managers looking to tap into the expected growth in offshore wealth management due to the COVID-19 pandemic. Half of private wealth managers surveyed by GlobalData in Q2 2020 predicted an increase in offshoring by their clients. With Latin America hard hit by the pandemic, it is likely to be at the forefront of this trend, and a large portion of the Wells Fargo offshore client base is drawn from the region.

Other major US wealth brands like Citi (already a major bank in Mexico) are most likely to benefit as advisers and their clients seek to stick with trusted banking brands. If so, there will be little noticeable shift in AuM, as these players are already giants in the US.

However, small US arms of Spanish and Canadian banks or even HSBC (also a major bank in Mexico), that have long developed a presence in the region and the US wealth market, may find Wells advisers knocking on their door too. Attracting a substantial number of Wells international advisers would have a noticeable boost to client AuM being managed by these international banks in the US. Time to refresh onboarding procedures, though hiring during a pandemic will be a challenge.

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