By Jeffrey A. Newman JD MBA
WHAT ARE FINANCIAL ADVISERS’ RESPONSIBILITIES REGARDING THE INTEREST PAID ON CASH SWEEP ACCOUNTS?
The United States Securities and Exchange Commission is investigating allegations that Wells Fargo, Morgan Stanley and other Wall Street titans have been cheating customers out of billions of dollars of interest payments. The rates offered to savers, by the nation’s largest banks, remains far lower than the returns paid to banks based on short-term interest rates set by the Federal Reserve.The SEC is looking into whether the groups steered those clients into sweep accounts that paid little or no interest, and whether the financial advisers at those companies had a fiduciary duty to advise clients they could make higher returns if they moved their cash into other accounts.
Wells Fargo last week said it was engaged in “resolution talks” with the SEC on the issue in a financial disclosure. In its quarterly securities filing, Bank of America also said it faced SEC reviiew over rates paid to customers on uninvested cash that is swept into interest-paying bank deposits. The bank declined to comment. LPL Financial and Ameriprise have been sued in recent weeks on behalf of customers.
In June, the SEC warned in Reg BI guidance that cash sweep programs are among the common sources of conflicts of interest that “might incline a broker-dealer, investment adviser or financial professional — consciously or unconsciously — to make a recommendation or render advice” that is not in clients’ best interest.
Ameriprise in July, became the latest brokerage to be sued over its cash sweep account program, facing allegations that the company failed as a fiduciary by keeping big spreads for itself rather than giving clients higher rates.
In the complaint filed in US District Court for the District of Minnesota, two plaintiffs wrote that, “this case concerns a simple ruse: instead of fulfilling its fiduciary duties, contractual obligations, and a regulatory mandate to act only in the best interests of their clients, defendants implement a scheme whereby they use their clients’ cash balances to generate massive profits for themselves while shortchanging their clients.”
Jeff Newman JD MBA, represents whistleblowers nationwide relating to Medicare and Medicaid fraud, under the state and federal False Claims Act (Qui Tam) laws as well as whistleblowers in major claims under the SEC, CFTC and FINCEN whistleblower programs. He can be reached at Jeff@JeffNewmanLaw.com or at 617-823-3217
