Wells Fargo and Merrill Lynch Settle SEC Charges Involving Cash Sweeps

Two Wells Fargo advisory firms and Merrill Lynch have agreed to settle Securities and Exchange Commission (SEC) charges that they violated Advisers Act rules relating to their cash sweeps programs.

The SEC alleged that the firms failed to consider the best interest of clients when selecting which cash sweep program options to offer them and did not fulfill the duties of financial advisors in managing client cash in advisory accounts, the regulator said in a Friday (Jan. 17) press release.

According to the regulator’s complaint, the firms set the interest rates offered in their bank deposit sweep programs (BDSPs), and when interest rates rose, the difference between the BDSPs’ yields and those of other cash sweep alternatives grew to near 4% at times.

Under the settlement, Wells Fargo Clearing Services, Wells Fargo Advisors Financial Network and Merrill Lynch agreed to pay civil penalties of $28 million, $7 million and $25 million, respectively, according to the release.

“These actions reinforce that advisory firms must have reasonably designed policies and procedures to consider their clients’ best interest when evaluating potential sweep options for cash held in advisory accounts and to ensure that cash held in an advisory account is properly managed by financial advisers consistent with a client’s investment profile,” Sanjay Wadhwa, acting director of the SEC’s Division of Enforcement, said in the release.

Reached by PYMNTS, Wells Fargo said in an emailed statement: “Our agreement with the SEC puts this broader industry matter behind us, and as the settlement states, we have already successfully addressed the issues covered by the resolution.”

Merrill said in a statement emailed to PYMNTS that the company began taking steps to address issues cited in the SEC’s complaint before it knew the regulator had begun an investigation.

“As the SEC noted, Merrill took several significant steps before becoming aware of the Commission’s investigation, including increasing the rates paid to advisory clients in Merrill’s Bank Deposit Program, lowering the minimum thresholds for investing cash in certain money market funds, and adopting and implementing enhanced supervisory procedures. In fact, Merrill was one of the first large firms to offer a significantly higher cash sweep rate for advisory clients’ uninvested cash.”

It was reported in August that several financial institutions were facing lawsuits alleging that they paid “unreasonably” low interest rates on accounts used in their cash sweep programs.