Wells Fargo & Co. is reducing the number of investment vehicles offered to brokers of high net worth clients, claiming the want to reduce its risk exposure and the threat of being sued by disappointed customers. Meanwhile, the number of investors pulling their money out of hedge funds has slowed down from last month.
[In the HFT vs. Regulators debate who blinks first?]
For the past few months, Wells Fargo has been tightening its control of financial instruments its partners can provide to wealthy clients. According to Reuters, Wells Fargo is slashing various investment plans from JP Morgan Asset Management, Legg Mason and "scores of small hedge funds and regional managers." News reports add that the number of investment products on the list from Legg Mason alone were slashed from 56 down to 12 instruments.
The numbers are dramatic: After its 2008 acquisition of Wachovia, Wells Fargo has an approved list of more than 1,000 investment strategies from roughly 470 portfolio managers. "Starting next month, brokers will no longer be allowed to solicit money for 633 of the strategies offered by 220 of the outside managers," according to Reuters.
Why the spring cleaning? It all comes down to risk.
"We want reassurance that the strategies being recommended to our clients...are something we are comfortable with," says Patricia Loepker, director of externally managed and institutional accounts at Wells Fargo Advisors.
She adds, "Our clients, of course, think they're good strategies because otherwise we wouldn't offer them, but it was time for us to deliver on that belief."
Needless to say, the brokers cut from Wells Fargo are not pleased. "They say they are trying to protect my interests but they are shutting down new business in these accounts," says an anonymous broker.
Hedge Fund Exits Stabilize
Meanwhile, the percentage of investors pulling their money out of hedge funds fell this month, which shows some stability in investor confidence.
According to figures from SS&C GlobeOp's forward redemption indicator, a monthly status report of clients giving notice to withdraw their cash from hedge funds, the percentage of investors asking for their money back stood at 2.95 percent in April.
That number hit 4.33 percent just last month in March, thanks to fears that banks in Cyprus were on the verge of default. The global markets were roiled due the theory that the island nation might leave the Euro, the official currency of the European Union.
"Redemptions are a little bit ahead of this time last year but I think that alternatives (alternative investments) are now a bigger part of people's savings so you're going to see more redemptions than you might have expected," says Bill Stone, chairman and chief executive of SS&C Technologies.
Phil Albinus is the former editor of Advanced Trading and he currently edits the FierceFinanceIT newsletter. Follow him on Twitter at @philalbinus.
Phil Albinus is the former editor-in-chief of Advanced Trading. He has nearly two decades of journalism experience and has been covering financial technology and regulation for nine years. Before joining Advanced Trading, he served as editor of Waters, a monthly trade journal ... View Full Bio