In the span of two days, three more lawsuits have been brought against brokerages over their cash sweep rates, including two cases against Wells Fargo and another against LPL.
Those add to other recent lawsuits over sweep rates filed against Merrill Lynch, Morgan Stanley, and Ameriprise, as well as a separate one LPL is facing. The cases also come as Wells Fargo last month indicated that it has changed pricing for cash sweeps at the cost of its net interest income and as the firm deals with an SEC investigation into its rates.
The lines of litigation allege that the brokerages violated their fiduciary duties to clients by providing relatively low rates on the non-traded cash assets, while the companies made large spreads on the money. The companies also allegedly failed to adequately disclose to clients that they had higher yielding options available for their cash.
“Designed primarily for short-term cash holdings, our FDIC-insured cash sweep vehicles prioritize security, liquidity, and yield – in that order,” LPL said in a statement. “We also offer investment options suitable for a longer-term horizon, such as money market funds, CDs, and fixed income funds. This flexibility allows our clients to tailor their investment strategies to align with their risk tolerance and financial goals.”
The recent lawsuit against that firm cites its cash sweep rates as a range from 0.35 percent to 2.2 percent, depending on the size of the account. Meanwhile, sweep rates at Vanguard and Interactive Brokers are 4.6 percent and 4.83 percent, regardless of account size, according to the complaint.
One of the lawsuits against Wells Fargo points to a range of 0.05 percent to 0.5 percent for the default cash option for Wells Fargo Advisors clients.
Wells Fargo declined to comment on the lawsuits.
Given that the deluge of cases is relatively new, it’s hard to gauge how successful the plaintiffs could be. But two factors will likely affect whether the complaints overcome the hurdle of motions to dismiss, said one lawyer who asked not to be named because similar litigation could affect clients.
The first factor is how well the rates and options for cash are disclosed to customers.
“Having that disclosure puts investors, depositors, on notice and is a strong defense,” the lawyer said. “It’s hard to complaint that you’re defrauded. Disclosure is important.”
The second factor is the brokerage’s relationship with the client and whether a financial advisor works with them.
“Whenever you have a financial advisor involved, fiduciary duties come into play,” the lawyer said.
Outside of the lawsuits, it’s worth noting the effect that customers’ demands for higher-yielding cash options, as well as regulatory scrutiny is having on brokerages’ business, as at least several have responded by increasing sweep rates, that source said.
“The impact’s going to go beyond litigation. It’s going to affect some of the business models going forward.”
A Nationwide survey finds 47% of GLP-1 users have never discussed the drugs’ financial impact with an advisor, even as many dip into savings.
The hundreds of millions of dollars from a sale of Inspired Healthcare properties does not mean an immediate windfall for investors.
Its SEC filings said one thing - a congressional probe said another.
Sham agreements allegedly padded revenue by 345%.
"Most pre-retirees are uncomfortable making key retirement income decisions without an advisor's help," said Chris Bailey of Cerulli.
Knighthead Life entered the market with a competitive MYGA. A strong launch earned advisor confidence and paved the way for FIAs.
As AI makes financial information more accessible than ever, Lana Hock explains why human judgment, trust, and empathy remain the qualities clients value most in a financial advisor
