[Photo:  Bill Larkins / Wikimedia Commons]

Wells Fargo agreed to pay a $1 million fine to settle FINRA charges that it failed to adequately supervise the use of Consolidated Client Reports generated by its advisors from mid-2009 to mid-2015.

In its AWC settlement letter, FINRA specifically cited Wells Fargo Advisors (n/k/a Wells Fargo Clearing Services) and its independent Financial Network unit (Wells Fargo Advisors Financial Network). WFA has nearly 27,000 advisors in over 7,000 branches and offices;  WFAFN has over 2,100 advisors in more than 700 branches.

A consolidated report is a document provided by a broker to a customer that combines account information regarding a customer's financial holdings, regardless of where those assets are held. Consolidated reports supplement, but do not replace, required customer account statements.

Consolidated statements are typically used to track all client’s assets and liabilities, including those held outside the brokerage firm. In many cases, advisors manually input assets held elsewhere.
 

Consolidated statements should be clear, accurate and not misleading. When preparing such reports, advisors must accurately value information about accounts and assets held away from a firm.

FINRA FINDINGS.     Between June 2009 and June 2015, advisors at the firms generated more than 5,000,000 consolidated reports - not all were sent to clients. Throughout that period, the Wells Fargo firms had no systems in place to review the consolidated statements produced by advisors, including information they manually inserted about customer assets held away from the firm, as detailed by the following allegations:

• A random sampling of only 2% of the consolidated reports were reviewed.
• Supervisors reviewed only the cover sheets, focusing on grammatical errors, customer contact information, the last date the Application Report was generated, and whether the Application Reports had the required disclosures.
• Supervisors did not, and had no system in place to, review the contents of the consolidated reports, including any information about customers' holdings away from the firms.