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Wells Fargo Sued for Breach of Fiduciary Duty in Churning Allegations

By Miriam Rozen October 9, 2018

A farm-owning family late last month filed a lawsuit in federal court alleging Wells Fargo breached its fiduciary duty. In the lawsuit the family alleges a Wells Fargo advisor engaged in churning life insurance contracts, racking up more than $597,000 in commissions for himself and his employer and leading to financial harm for Shirley Webber, the family’s matriarch – a widow whom the lawsuit describes as “unsophisticated in financial matters.”

The lawsuit, among the thousands filed against embattled Wells Fargo institutions nationwide in recent months, stands out because of particularly egregious allegations against the embattled financial services company. It also highlights a dubious practice of securing multiple insurance policies for a client.

Spokespersons for Wells Fargo, which has not yet filed an answer to the lawsuit, did not provide a comment for this story.

Anthony Panebianco, a lawyer with the Hingham, Mass. firm Drohan, Tocchio & Morgan, who represents the Webber family plaintiffs, did not return a request for comment for this story.

But financial advisors, describing best practices, shudder at the notion of recommending multiple expensive life insurance contracts for their clients.

“We do place insurance contracts as necessary with our clients, but always with the intention that they would be long-term contracts. I can’t think of a single time when I asked a client to exchange to a new contract,” states Lynn McIntire, a registered principal with Raymond James Financial Services and principal of Cadent Capital in Dallas, which has more than $300 million under management.

According to the Webber family’s lawsuit, Wells Fargo purchased insurance coverage with a $5 million face value when the matriarch sought a policy with a face value of only $1 to $2 million to protect her daughters from having to sell a farm “under duress or at a reduced value to pay estate taxes” if she died.

According to the lawsuit, during a roughly 15-year period Wells Fargo recommended Webber purchase multiple policies, including one with an annual premium of more than $145,000 a year, which, in turn, required her to take out a credit line since she lacked the liquidity to pay that bill.

“The amount of turnover in the policies was unnecessary and a dramatically poor financial decision for Shirley. However, it was advantageous for Wells Fargo, because at each turn, Wells Fargo received exorbitant compensation for the purchase, sale or conversion of the various policies, compared to the lack of benefit for Shirley and her family,” the lawsuit states.

“Wells Fargo would secure life insurance policies for Shirley to coincide in time with incentive compensation for agents of Wells Fargo,” the lawsuit alleges.

According to the lawsuit, the Wells Fargo advisor, who is not named as a defendant, and his wife “fostered an inappropriately close relationship” with the widow and her new spouse and “used that relationship to increase … sales of insurance and other products to meet sales goals and generate incentive compensation, as well as produce income for Wells Fargo.”

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The family’s lawsuit also alleges Wells Fargo employees “would fill out the applications and financial statements on her behalf, without her input or authority, and without confirming the accuracy of the application.” By doing so, the lawsuit alleges Wells Fargo reported an inflated value for her net worth, creating “a likelihood that the insurer would refuse to pay out on the policy if Shirley passed away while the policy was in place.”