A former Wells Fargo Advisors trainee has filed a lawsuit alleging that the firm's attempts to recoup training costs from those who leave the program constitute a violation of labor laws.
The suit, which was filed today on behalf of Erika Williams, claimed that the firm unlawfully sought to reclaim more than $50,000 in training costs after she was reportedly “constructively discharged” from the firm last June. She alleged that the practice not only violates the Fair Labor Standards Act, but also presents an undue hardship on minority trainees, who have high failure rates.
Wells Fargo spokesman Anthony Mattera said the company had not yet been served and would not have a comment until it had reviewed the complaint.
Ms. Williams' case, which seeks class certification, is one of the first to raise questions about a common practice at many large firms with training programs, including Bank of America Merrill Lynch and Edward Jones.
Most training agreements require trainees to stay at a firm for the duration of the program, which usually range from around 30 to 40 months and then a year or two after.
Wells Fargo's trainee agreement is a five-year contract that values the training at $55,000, according to the complaint.
During the last four years, the amount that Wells Fargo can claim the adviser owes decreases at a set rate each month until it is fully amortized at the end of the four years, Mr. Mattera confirmed.
It is difficult to tell how many trainees are held liable for the costs of their training because most settle and the amounts are conditioned on confidentiality agreements.
In recent years, however, as firms re-emphasize training, several former trainees have wound up in arbitration over disputes arising from training fee claims.
Only two arbitration awards involving claims for the recovery of training costs appeared each year from 2009 to 2011, according to an analysis by Securities Arbitration Commentator Inc., a securities award research firm. That jumped to 15 in 2012 and another seven cases went to arbitration in 2013.
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The practice is intended to prevent the firms from incurring losses from advisers who move to another firm after being trained.
Retention has been and continues to be a major issue for firms. At Merrill Lynch, for example, an average of about 30% of trainees who make it through the first nine months of its 43-month Practice Management Development program make it through the rest of the program. That's in-line with or higher than the industry average, according to a study last year from consulting firm Cerulli Associates Inc.
An Edward Jones spokesman, John Boul, said that the firm requests that the adviser's new firm pay the training costs when a trainee leaves for a competitor.
“Edward Jones and Merrill Lynch and others out there doing training invest a lot of money in these people,” said Ron Edde, president and chief executive of career consulting firm Millennium Career Advisors. “It's not like we're sending them to a real estate licensing course for $450.”
But Ms. Williams, who moved to J.P. Morgan Securities last July, according to Finra records, alleges that Wells Fargo not only seeks to recover more than the trainee's salary, but also pursues claims when the trainee is let go for failing to meet standards.
A letter sent by a law firm valued Ms. Williams' debt at $50,875, higher than her annual salary of $45,000, according to the lawsuit.
The practice also places an unfair burden on minority advisers who fail at a higher rate because they receive less support from the firm, according to Ms. Williams, who is African-American and is part of another class discrimination claim against Wells Fargo filed by the same law firm, Stowell & Friedman.