Sunday, July 24, 2016

Wells Fargo "Envision" Retirement Plan Fraud via WFC's 4front Financial Advisor Retention, Incentive Bonus Scheme

Wells Fargo defrauded, recommitted and is currently committing fraud on thousands of Wells Fargo clients whose accounts are governed by The Investment Advisors Act of 1940 via misleading Envision financial plans updated without matching Envision financial plan asset allocation models to investment accounts, so Financial Advisors could qualify for the 4front incentive bonus' after the Wells Fargo Wachovia merger.

In 2009, while in possession of TARP monies, Wells Fargo initiated a pattern of the use of a device and scheme to defraud the U.S. government and clients with more than $250,000 held at Wells Fargo, by omitting to state material facts necessary in order to make statements made by hundreds if thousands of Envision plan reports delivered by wire and the mail, created by thousands of financial advisors, in the light of the circumstances under which they were made, not misleading via the 4front Envision plan related financial advisor retention bonus program...in violation of federal laws.

Many of the households whose accounts were/are governed under the Investment Advisors Act of 1940 were used to get the 4front bonus', which makes it illegal, as Financial Advisors were compensated over and above what was disclosed to clients via the use of misleading information.

Section 206 of the Investment Advisors Act of 1940 states "It shall be unlawful for any investment adviser, …to employ any device, scheme, or artifice to defraud any client or prospective client;  to engage in any transaction, practice, or course of business which operates as a fraud or deceit upon any client or prospective client; or...  to engage in any act, practice, or course of business which is fraudulent, deceptive, or manipulative."

If about 10,000  Financial Advisors had to do a minimum of 25 Envision Investment Plans on households worth at least $250,000 to receive Wells Fargo 4Front compensation retention bonus' after Wells acquisition of Wachovia, and the average assets held by households that received 4Front Envision plans was/is about $450,000, and the average number of qualifying for 4Front Envision Plans was/is about 35 per Financial Advisor, and if about 10,000 FA's created about 35 plans each = 350,000 4Front Envision Plans, and about 350,000 x what could be about $450,000 of assets held for each household = $157,500,000,000, meaning it looks like it happened to more than $150 billion of Wells Fargo Advisors client assets, much of which was covered by fiduciary obligations under the Investment Advisors Act of 1940, which made the scheme illegal.

As a fiduciary, Wells Fargo is currently defrauding and recommitting fraud on what appears to be hundreds of thousands of clients, many with accounts governed by The Investment Advisors Act of 1940, via misleading Envision financial plans created to qualify for the 4front incentive bonus and updated without including charged investment costs in projected minimum client goals.

I believe Wells Fargo violated the following laws;

29 U.S. Code § 1104 - Fiduciary duties

8 U.S. Code § 1343 - Fraud by wire, radio, or television

17 CFR 240.10b-5 - Employment of manipulative and deceptive devices

15 U.S. Code § 77q - Fraudulent interstate transactions

15 U.S. Code § 80a–35 - Breach of fiduciary duty

15 U.S. Code § 80a–47 - Liability of controlling persons; preventing compliance

15 U.S. Code § 80b–6 - Prohibited transactions by investment advisers

17 CFR 240.10b-3 - Employment of manipulative and deceptive devices by brokers or dealers

15 U.S. Code § 78t - Liability of controlling persons and persons who aid and abet violations

I have worked as a financial advisor since 1993, and have taught CPA and attorney financial ethics in North Carolina for more than a decade.

Many Wells Fargo Envision Plans don't include investment fees. meaning projections shown to hundreds of thousands of Wells Fargo clients are fraudulent;

On September 7, 2012, in front of 25 to 40 financial advisors at the Hyatt Regency St. Louis at The Arch, Greg Shiveley, Envision Sales Manager at Wells Fargo Advisors, said “There are 441,942 households with Envision Plans of Record.” and “The overwhelming majority of Envision Plans do not include investment costs."

If the average household with an Envision Plan had $400,000, about $177 billion of client assets may be involved.  If “the overwhelming majority of Envision Plans [did and] do not include investment costs,” and Plans of Record appear on client statements, hundreds of thousands of Wells Fargo clients are currently being illegally misinformed as to the probabilities of achieving their financial goals.



I violated my fiduciary responsibilities to clients with advisory accounts by not including investment fees in their Envision plans, along with thousands of other Wells Fargo Financial Advisors.

Envision plans can be manipulated to sell clients and prospects on new investment ideas, staying on a current course with a financial adviser, and with the "retention" plan, game compensation in violation of Investment Advisers Act of 1940.

These outcomes are repeatable, meaning this can be duplicated on any Wells Fargo Advisors computer by others investigating independently.

The following “Internal Use Only” document states: "If left at 0%, the Return Discount Rate will not be displayed on any Envision report pages.  If you choose a Return Discount Rate above 0%, this assumption will be displayed on the Investment Plan Assumptions report page."  Meaning if the "Return Discount Rate", otherwise known as annual investment fees aren't included, the information does not show up in the client presentation, even though inflation, tax and turnover measures do.


As shown after the third main bullet point below, "Return Discount Rate" was called “Annual Investment Fee” before 2012.



Example: Harold Lynn

The following shows a comparison of two reproducible versions of the same Wells Fargo Envision Plan with one difference - investment fees.



"Harold Lynn" has $1,000,000 invested, with an annual investment fee of 2.5%.

Both versions have the same data inputs, except the second plan doesn't include the investment fees, like "the overwhelming majority of Envision Plans.”  The first plan includes 2.5% annual investment fees, which Harold is currently paying.

Again, Investment fees are not shown on client presentations unless entered, as seen on the following pages, even though both presentations include everything else.  Notice "Return Discount Rate" under "Investment Assumptions"


Note the absence of the “Return Discount Rate” under the description of “Investment Assumptions” in the second version of the plan.


Section 206 of the Investment Advisors Act of 1940 states "It shall be unlawful for any investment adviser, …to employ any device, scheme, or artifice to defraud any client or prospective client;  to engage in any transaction, practice, or course of business which operates as a fraud or deceit upon any client or prospective client; or...  to engage in any act, practice, or course of business which is fraudulent, deceptive, or manipulative."

Without the investment fees included for Harold’s $1,000,000, Envision's software can generate the following client compliance approved graph indicating a high degree of wonderfulness if Harold continues to follow the recommendations.


The problem is the Envision Plan including what Harold is actually paying for his investments, is that he would need to begin with about $840,000 more to achieve similar results, meaning the plan not including the 2.5% annual investment fees clearly appears to be misleading.


The black dot on the Y axis of the charts indicates Harold's $1,000,000.

The two rising lines represent the “Target Zone”, which the software identifies as a “reasonable level of confidence that goals can be met or exceeded.”

The lowest lines in the graphs represent a 75% chance of reaching Harold’s goal.

The lines are much higher on the bottom graph when investment fees are included.

Wells Fargo Advisor's Internal Use Only "Presenting Envision results that matter" states "If the client has any doubts about the underlying assumptions, Advisors should be prepared to provide clarity and rationale. Observe that this is based on “IF” the client has doubts about assumptions, which means advisors do not need to burden clients with a detailed explanation of the assumptions if they are not in doubt of your ability to understand their goals and priorities." and "If the client asks you how their confidence is measured, this will require a careful explanation but it should not be focused on mathematics. Instead, the focus should be on the results of the math."  And "If you fall into the red, above target zone, you are making needless sacrifices to your lifestyle...," meaning some clients may be spending more than they "should", if investment fees are not included in Envision plan target zone calculations.

The "Internal Use Only" document (0211-5064) also states "Although it may be unintended and clearly disclosed away, this report will serve as a guarantee (in the eyes of the client) of how reality should unfold. It illustrates what they should have in taxable assets in 2013, their tax bill in 2015 and their net portfolio withdrawal in 2020. No matter how many disclosures that are made, how else would you perceive this report if you were a client?" and "With the Envision process, the job is to focus on what matters: the client’s confidence and comfort in achieving the goals they value most. Presenting results that matter is what creates the confidence and comfort the client desires."
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FINRA Rule 2210 states "All member communications must be based on principles of fair dealing and good faith, must be fair and balanced, and must provide a sound basis for evaluating the facts in regard to any particular...service.  No member may omit any material fact or qualification if the omission, in light of the context of the material presented, would cause the communications to be misleading.  No member may make any false, exaggerated, unwarranted, promissory or misleading statement or claim in any communication.  No member may publish, circulate or distribute any communication that the member knows or has reason to know contains any untrue statement of a material fact or is otherwise false or misleading.”

If “The overwhelming majority of Envision Plans do not include investment costs," I believe many of the 98% of Wells Fargo Envision Plan clients cited in this advertisement really don’t know where they stand in reaching their financial goals.


FINRA Rule 2210 also states “Information may be placed in a legend or footnote only in the event that such placement would not inhibit an investor's understanding of the communication.  Members must ensure that statements are clear and not misleading within the context in which they are made, and that they provide balanced treatment of risks and potential benefits.  ...Members must consider the nature of the audience to which the communication will be directed and must provide details and explanations appropriate to the audience.

Communications may not predict or project performance, ...or make any exaggerated or unwarranted claim, opinion or forecast...  Any comparison in retail communications between investments or services must disclose all material differences between them, including (as applicable) investment objectives, costs and expenses..."

Recommitting Fraud

Wells Fargo Advisors mandated Envision Plans of Record be updated annually, forcing thousands of Advisers who didn't include investment fees to repetitively recommit fraud upon their clients in later years.  Internal Wells Fargo Advisors web pages and documents say “To receive credit for the review/update of an existing plan, you must …conduct a thorough review of client goals and account information, ensure that everything is up to date and that your advice is current.   If you discover that changes are needed, simply update the information, review accuracy and ensure that your advice is current and the plan is within or above the Target Zone.  A new Client Presentation or Progress Report must be generated with the past 12 months...[and] the plan is presented to the client and reviewed on at least an annual basis”, the results of which show up on client statements.

Internal Wells Fargo Advisors web pages and documents also say “...The Financial Adviser must keep their plans updated and continue serving their clients.  On an ongoing basis, the plans will be reviewed ...and the plan must be continually adjusted so that it will keep the client on track towards achieving their goals. (This is measured by looking at whether the plan is within or above the Target Zone...)

Section 36 of the Investment Advisors Act of 1940 states "The Commission is authorized to bring an action...alleging that a person ...is about to engage in any act or practice constituting a breach of fiduciary duty involving personal misconduct in respect of any registered investment company for which such person so serves or acts, or at the time of the alleged misconduct, so served or acted — as ...investment adviser...”

“...the investment adviser … shall be deemed to have a fiduciary duty with respect to the receipt of compensation for services, or of payments of a material nature, paid by such registered investment company… to such investment adviser…  An action may be brought … by the Commission...against such investment adviser... who has a fiduciary duty concerning such compensation or payments, for breach of fiduciary duty in respect of such compensation or payments paid by such registered investment company...to such investment adviser or person.  …It shall not be necessary to allege or prove that any defendant engaged in personal misconduct, and the plaintiff shall have the burden of proving a breach of fiduciary duty."

I chose to speak out for my clients, family, students, country and colleagues, instead of living out a fraud.

George Hartzman
Former Vice President/Investments
Fundamental Choice Portfolio Manager, Wells Fargo Advisors