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Wells Fargo Not Budging on Controversial Deferred Comp Policy

By Miriam Rozen February 4, 2020

Wells Fargo Advisors will not remove or alter a forfeiture clause in its FAs’ deferred compensation plan, despite settling a lawsuit for $79 million about that provision, a spokesman for the wirehouse tells FA-IQ.

The forfeiture clause calls for FAs to forsake some of their earned deferred compensation if they exit before all of it is vested.

The wirehouse entered into a settlement last week with its former advisors who claimed in a proposed class action that the clause violated Erisa vesting rules. Up to 1,400 former Wells Fargo Advisors could potentially be eligible for a share of the settlement.

“While Wells Fargo has consistently denied the allegations in this class action lawsuit involving former financial advisors, we also believe that resolving this matter is in the best interest of the company,” the spokesman said in a written statement issued after the inked deal was filed with a federal court.

When asked if Wells Fargo Advisors would either remove or alter the forfeiture clause in its deferred compensation plan going forward, the spokesman said simply: “No.”

The named plaintiff in the proposed class action, Robert Berry, worked at Wells Fargo Advisors from 1999 to 2014, according to his BrokerCheck record.

When Berry exited Wells Fargo for LPL Financial, he had to forfeit about $200,000 in deferred compensation that had not vested because of the plan’s forfeiture clause, according to his most recent court filing.

Berry and the other ex-Wells Fargo Advisor FAs had alleged the forfeiture clause violated Erisa rules.

Erisa allows such clauses only in “top-hat” tax-protected retirement plans, according to David Siegel, a lawyer with Houston-based Ajamie, representing the former Wells Fargo FAs who filed the lawsuit. According to federal regulations, only small groups of highly-paid employees at a company should be covered by such clauses, rather than large swaths of a company’s workforce, Siegel adds.


A court must still approve the settlement terms for the deal to be final.

Potential share for other Wells Fargo Advisors FAs

If the deal becomes final, some 1,400 former Wells Fargo Advisors FAs would get a share of any settlement, according to previous estimates supplied by the lawyers representing Berry and the other former advisors who sued the wirehouse. That would translate to an average payout of roughly $56,000 to each of the 1,400 former FAs, if they all qualify to partake in the $79 million settlement. And that does not account for attorney fees, which could swipe one-third of those sums under the settlement terms.

But averaging the potential payout using a former advisor headcount of 1,400 could be “misleading,” according Siegel.

The estimated number of eligible ex-Wells Fargo Advisors representatives has changed frequently during negotiations, Siegel says, adding he’s not sure what the final number will be.

Wells Fargo Advisors’ spokesman also said the exact number of eligible advisors isn’t currently available.

Former Wells Fargo Advisors FAs would be eligible for a payout if they participated in the deferred compensation plan between Feb. 1, 2011 until Jan. 31 of this year. To qualify, though, they should also have earned compensation under the deferral plan but been denied it when they left because of the plan’s forfeiture clause.

According to the plaintiffs, nine former Wells Fargo representatives already “expressly released” the wirehouse from the related claims, so they will not be covered under the settlement.

In their most recent court filing, Berry and the other ex-Wells Fargo Advisors FAs estimate that the wirehouse had denied about $265 million in deferred compensation to exiting FAs based on the challenged forfeiture clause — significantly more than the settlement amount.

Under the settlement, Berry would receive $10,000 in compensation for his role as a named plaintiff — an amount typical of such agreements.

Berry and the others said their attorneys would ask for fees of no more than one-third of the settlement amount — or about $26 million — and no more than $500,000 in expenses. The attorney fees would be paid from the $79 million under the agreed-upon terms.

If ex-Wells Fargo Advisors FAs become eligible for the settlement payouts, they will receive notifications and checks in the mail, according to the terms of the settlement. The amount of those checks will be based on how long each FA worked at Wells Fargo Advisors and the amount of deferred compensation each had accumulated at the time they left the wirehouse, the terms state.

This article was originally published as breaking news on Feb. 3, 2020.

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Tags:  ERISA plans/institutional management , Fees and compensation , Regulatory/legal issues , LPL Financial , Wells Fargo Advisors

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