Raymond James hit with second 'sweeps' lawsuit

Raymond James was hit with a second suit this week alleging that it fails to look out for clients' best interests with its "cash sweeps" policies.

A putative class-action lawsuit filed Tuesday in federal court in Orlando, Florida, accuses the large broker-dealer of breaching its fiduciary duties with its handling of clients' uninvested cash. The suit comes as the latest in a series of legal attacks launched at some of the biggest names in the wealth management industry, including Morgan Stanley, UBS, LPL Financial, Wells Fargo and Ameriprise.

Raymond James itself was hit with another suit earlier this week alleging it doesn't play fair with its cash sweeps policies. "Cash sweeps" refers to firms' practice of moving clients' uninvested assets over to banks where it can be lent out and invested.

All the lawsuits filed so far make basically the same accusation: That firms are keeping too much of the money generated from these sweeps for themselves and sharing too little with investors. The suits also accuse wealth managers of failing to disclose exactly how their sweeps policies work.

"As its customers' agent, [Raymond James & Associates] was bound to act in the best interest of those customers, but failed to do so," according to the new suit. "Instead, RJA's customers received unreasonably low interest rates under the Program."

A Raymond James spokesperson declined to comment.

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The latest suit, filed on behalf of a pair of Ohio residents named Raymond and Juliet Schmidlin, says Raymond James routinely moves clients' uninvested cash over to affiliated banks, Raymond James Bank and TriState Capital Bank, as well as various nonaffiliated banks. Citing regulatory filings, the suit says Raymond James had $23.37 billion in sweeps balances at affiliated banks by June 30 and nearly $17.33 billion at nonaffiliated banks.

No matter where the money goes, according to the suit, "RJA pays its customers a nominal amount in the form of interest and keeps the rest."

Raymond James executives have previously expressed comfort with their firm's cash sweeps policies. Speaking last month in an analyst call about third-quarter earnings, Chief Financial Officer Paul Shoukry, who has been tapped to become the next CEO, called Raymond James' sweeps policies "well thought through" and "very compliant."

The legal team in the latest Raymond James suit consists partly of lawyers from Berger Montague of Philadelphia and Rosca Scarlato of Beachwood, Ohio. The same group has also filed putative class actions against  Wells Fargo, LPL Financial and Ameriprise. Joining them for this latest suit is a Boca Raton, Florida-based firm named Steinlaw.

A separate group of firms, consisting of lawyers from Simmons Hanly Conroy of San Francisco, Williams Dirks Dameron of Kansas City and Oakes & Fosher of St. Louis, is meanwhile pressing suits against Morgan Stanley, UBS, LPL, Wells Fargo, Ameriprise and Raymond James. 

And yet another firm, Gibbs Law Group in Oakland, California, is pursuing much the same strategy in the third sweeps-related suit filed so far against Wells Fargo. Gibbs is also working with Berger Montague on another suit directed at Ameriprise, filed on behalf of a California resident named Mark Frey.