Wells Fargo is being hauled into court again over allegations it wasn't paying clients enough on their uninvested cash held in advisory and brokerage accounts.
A putative class action lawsuit filed on Tuesday in federal court in San Francisco is the latest in a mounting heap of similar actions taking firms to task for their "cash sweeps" policies. Like the previous suits — including at least two others against Wells Fargo — the new one accuses Wells of violating its fiduciary duties with its handling of clients' uninvested money.
"Rather than pay its customers a reasonable rate of interest on their cash as it was required to do, Wells Fargo instead paid miniscule rates to its customers, while it earned hundreds of millions of dollars on that cash due to rising interest rates," according to the suit, filed on behalf of a Nevada resident named Darren Cobb.
A spokesperson for Wells Fargo declined to comment.
READ MORE:
Wells Fargo set sweeps rate to mirror money markets
Raymond James hit with second 'sweeps' lawsuit
JPMorgan, Raymond James join firms sued over cash sweeps
Suit: UBS' sweeps change is 'implicit admission' of wrongdoing
Cash sweeps legal avalanche hits Ameriprise, LPL with new suits
"Cash sweeps" refers to the practice of moving uninvested cash held in clients' advisory or brokerage accounts and moving it over to affiliated or unaffiliated banks where it can be invested or lent out for relatively high returns. The recent rash of lawsuits accuses firms of keeping the lion's share of the money generated for themselves and allowing inexcusably small amounts to flow back to investors. The suits generally allege money managers could easily secure better returns for clients simply by putting their uninvested cash in money markets and similar investment vehicles, many of which now yield around 5%.
Wells Fargo is far from the only firm to be sued in recent months over alleged mishandling of cash sweeps accounts. Morgan Stanley, LPL Financial, Ameriprise, Bank of America's Merrill, UBS, Raymond James, JPMorgan and Charles Schwab, among others, have also come within plaintiffs' lawyers' crosshairs.
Nearly all of the suits say that the firms' sweeps policies violate their fiduciary duty to always put their clients' interests first. Some also say the firms' handling of uninvested cash in brokerage accounts breaches the related Regulation Best Interest conduct standard, which calls on brokers to do what's best for clients and disclose conflicts. The latest suit against Wells Fargo also accuses it of failing to secure a reasonable rate of return for money held in clients' individual retirement accounts, or IRAs.
Wells Fargo, which has said the Securities and Exchange Commission is also looking into its sweeps policies, is also among the firms that have made changes to deposit rates amid the recent regulatory and legal scrutiny. The firm said in its second quarter earnings that it was raising the rates on certain advisory accounts, a change expected to lower revenue in its Wealth and Investment Management unit by $350 million this year.
Morgan Stanley and UBS have both also announced similar changes.
