Cash Sweep Litigation Continues to Drive Legal Costs
From the desk of Jim Eccleston at Eccleston Law
Cash sweep litigation continues to increase legal costs for wealth management firms despite the Securities and Exchange Commission's (SEC) decision under the Trump administration to close pending investigations without imposing enforcement penalties, according to AdvisorHub.
Raymond James Financial reported a 75 percent sequential increase in professional fees during the quarter, rising by $27 million to $63 million. Chief Executive Officer Paul Shoukry said the "vast majority" of the increase stemmed from legal expenses associated with defending cash sweep claims.
Raymond James Chief Financial Officer Butch Oorlog said the company expects those expenses to continue into future quarters, although not at the same level as the previous three months. Company executives did not disclose the total amount Raymond James spent defending the litigation during the quarter.
"We believe we have strong defenses to the claims asserted and we are vigorously defending the action," Oorlog said during the company's earnings call, according to AdvisorHub. He added that defending the claims has increased the company's costs.
Beginning in 2024, plaintiffs' attorneys filed proposed class actions against firms including JPMorgan Chase, UBS Wealth Management USA, Ameriprise Financial, LPL Financial, Merrill Lynch parent Bank of America, Morgan Stanley, and Wells Fargo. AdvisorHub reports that the lawsuits generally allege that the firms profited by retaining most of the interest generated from uninvested cash in advisory accounts while paying clients comparatively low rates.
Several firms subsequently increased the rates offered through their cash sweep programs.
According to AdvisorHub, federal regulators also examined cash sweep practices during the Biden administration. In January 2025, Merrill and Wells Fargo agreed to pay a combined $60 million to resolve allegations that they failed to pay advisory customers a fair rate on uninvested cash in their advisory accounts.
After President Trump took office, some firms disclosed that the SEC had closed its investigations without taking enforcement action. Morgan Stanley and LPL were among the firms that reported the conclusion of the SEC probes by May 2025.
The private litigation, however, has continued. According to a blog published by Rain Intelligence, a legal consulting firm, courts have narrowed some of the central claims in the lawsuits. Plaintiffs' attorneys have responded by focusing on whether firms owed clients a duty concerning the rates paid on uninvested cash, rather than simply arguing that the rates were too low.
Rain Intelligence reported that courts have dismissed one case while denying Merrill's and Ameriprise's motions to dismiss. Claims against JPMorgan also survived a motion to dismiss.
Other plaintiffs have filed additional lawsuits against firms including Janney Montgomery Scott and Betterment, according to Rain Intelligence. The consultants reported that approximately 20 cash sweep cases remain pending in federal courts.
Eccleston Law LLC represents investors and financial advisors nationwide in securities, employment, transition, regulatory, and disciplinary matters.
Tags: eccleston, eccleston law, cash sweep litigation, sec enforcement, wealth management, securities law, financial regulation
