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Wells ignited first-quarter brokerage profit with managed account sales

The logo on a Wells Fargo bank building is seen in downtown San Diego, California March 18, 2014. REUTERS/Mike Blake

By Jed Horowitz

NEW YORK (Reuters) - Strong sales of fee-based managed investment accounts by Wells Fargo & Co. brokers fueled a 41 percent jump in net income in the bank's "Wealth, Brokerage and Retirement" unit during the first quarter.

The fourth-largest U.S. bank company, which emphasizes the diversity of its business model, said Friday that growth in managed account advisory fees and other market-sensitive revenue generated $10 billion of noninterest income for Wells in the three months ending March 31.

The fees, which also included trading and investment gains in the bank's own portfolio, helped offset declines in mortgage lending. Wells is the biggest home loan lender in the U.S.

The wealth businesses remain Wells Fargo's smallest, with its $475 million of profit representing 7.8 percent of the $6.1 billion of net income from the bank's three business segments. Community, or branch banking, generated $3.8 billion of net income in the first quarter, and profit from wholesale banking, or loans and investment banking services to corporations, was $1.7 billion.

Like Bank of America's Merrill Lynch, UBS Wealth Management Americas and other brokerage firms owned by big banks, Wells Fargo Advisors has been urging brokers to sell loans, insurance and other bank products and services to supplement traditional investment products. The average Wells Fargo wealth sector client had 10.4 products or services from the bank as of the end of February, a greater "cross-sell" rate than in any other sector of the bank.

Bank-owned brokerages also have been urging brokers to convert more clients to fee accounts, which are charged as a percentage of assets in the accounts, because they are more stable and tend to be more profitable than traditional commission-based accounts.

More than 80 percent of Wells Fargo's wealth management and brokerage revenue now come from recurring revenue such as fees, rather than unpredictable commissions, the company's chief financial officer said on a conference call with analysts.

Brokerage Loans

Managed account assets at Wells Fargo Advisors soared 19 percent in the first quarter to $388 billion from a year earlier, and 4 percent from the last quarter of 2013. That beat the 1.3 percent rise in the Standard & Poor's 500 index during the first quarter, indicating that brokers actively attracted fee-based assets from existing and new customers.

Client loan balances in Wells's three wealth businesses, which also include financial planning for affluent investors and retirement services for companies and individuals, jumped 14 percent from last year to an average of $50 billion during the first quarter. Wealth sector clients also added $156 billion of low-cost deposits to their banking accounts.

Improving credit quality among U.S. consumers helped Wells write down fewer loans last quarter, and seeped into the Wealth, Brokerage and Retirement unit, which focuses on loans to people with $250,000 or more to invest. It released $8 million from its reserve for credit losses to the bank's earnings, following a $27 million release in the fourth quarter of 2013.

Total client assets at the brokerage unit inched up 1 percent from last year's fourth quarter and 8 percent from a year earlier to $1.4 trillion. Individual retirement account assets grew at a similar pace, up just 1 percent from the fourth quarter and 9 percent from a year ago in the retirement sector.

Assets in the wealth unit, which focuses on millionaire clients, endowments and foundations, reached $217 trillion at March 31, up 1 percent from the fourth quarter and 6 percent from a year ago.

The number of brokers at Wells Financial Advisors, the second-biggest U.S. brokerage firm as measured by sales force, fell by 1 percent during the first quarter to 15,146. Most work in Wells Fargo Advisors branch network, which include acquisitions in the past decade of Wachovia Securities and A.G. Edwards. Wells also provides products and business services to independent advisers through its Financial Network business and through brokers at its bank branches.

(Reporting By Jed Horowitz; Editing by Meredith Mazzilli)