Wells Fargo takes a $166 million wealth-tech hit as new management rethinks big projects

• Wells Fargo's massive wealth and investment management division reported $166 million in technology-related expenses in its fourth-quarter earnings results on Tuesday.
• The item, "expenses related to the strategic reassessment of technology projects," marked the second-straight quarter of such a technology project-related hit that came out to north of $100 million.
• The San Francisco-based bank, which counts controlling costs as a main goal under new leadership and has been advertising more tech roles than in the past, declined to elaborate on these expenses.
• Still, the two large technology costs underscore the very fluid nature of the firm still trying to put its massive fake-account scandal that came to light more than three years ago.
• These costs and management's shifting plans around tech in that unit come as fast-evolving wealth-tech is re-shaping virtually every channel within the broader wealth management industry.
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Wells Fargo's massive wealth and investment management division reported $166 million in technology-related expenses when the bank reported fourth-quarter earnings on Tuesday.

The item, "expenses related to the strategic reassessment of technology projects," primarily "equipment expense," marked the second-straight quarter of such a technology project-related expense north of $100 million.

In the third quarter, the wealth and investment management arm - among the country's largest by number of advisers and client assets - reported a rise in non-interest expenses largely due to "higher equipment expense including a $103 million impairment of capitalized software."

The San Francisco-based bank, which counts controlling costs as one main goal under new leadership, declined to comment to Business Insider on what specifically these expenses were.

Still, the two large technology costs underscore the very fluid nature of the firm still trying to put its massive fake-account scandal that came to light more than three years ago and led to the ousting of two chief executives and an unprecedented limitation on growth imposed by the Federal Reserve.

These costs and management's shifting plans around tech in that unit come as fast-evolving wealth-tech is re-shaping virtually every channel within the broader wealth management industry - particularly as cheap, automated, human-less solutions aimed at younger generations have gained momentum, challenging legacy brands and business models.

And it's not just the competitive client-facing tech that's under a microscope. Wealth and asset management firms are constantly challenged to up their own wealth-tech offerings for financial advisers; we first reported the New York asset manager Neuberger Berman has been overhauling its client- and adviser-facing digital portals and platforms.

Analysts and regulators have needled Wells Fargo executives about specific steps they are taking to earn back the public's trust, cut back on costs, and improve relations with Washington.

An analyst asked the bank on Tuesday what drove the $166 million wealth tech expenses and "whether there could be other IT projects that you're looking at reassessing or cutting."

Wells CFO John Shrewsberry said a shift in priorities under Jon Weiss, head of wealth and investment management, in handling technology that supports different parts of the wealth business resulted in an impairment charge related to software development.

"I wouldn't anticipate seeing a lot more of that. And to be honest, we don't have an extraordinary amount of capitalized software development costs. So the risk isn't that great from an accounting perspective," he said.

Weiss was named to his post in 2017 after serving in various roles since joining the firm in 2005.

Wells Fargo in July 2019 shuffled senior leadership across several units, including one of Weiss's direct reports. Jim Hays was named head of Wells Fargo Advisors, reporting to Weiss, and replaced the former head David Kowach, who moved over to lead community banking.

Wells Fargo overall has been advertising more tech roles than in the past, according to a recent job-listing analysis from Jefferies and the data provider Thinknum.

Executives answered many questions related to reducing costs - which have risen in part to paying for litigation and brand marketing in the scandal's wake.

"Our expenses were too high and becoming more efficient remains a top priority," Shrewsberry said of expenses broadly on a call with analysts on Tuesday.

And chief executive Charlie Scharf, addressing his first earnings call in that post, said more pointedly: "We don't sit here and believe that we have carte blanche to spend whatever we possibly want on any issue. We are going to spend what's necessary on these historical issues."

Broadly, the firm reported quarterly results that fell short of Wall Street's estimates. Investors dumped the stock as shares fell as much as 5% in afternoon trading.

"Overall, results were below our expectations on lower revenues and higher expenses," analysts from the firm Keefe, Bruyette & Woods led by Brian Kleinhanzl said in a note to clients on Tuesday.