Wells Fargo Under SEC Scrutiny for Cash Sweep Programs

Posted on November 28th, 2023 at 9:47 AM
Wells Fargo Under SEC Scrutiny for Cash Sweep Programs

From the desk of Jim Eccleston at Eccleston Law 

The Securities and Exchange Commission (SEC) is investigating Wells Fargo & Company over cash sweep options provided to investment advisory clients. The investigation focuses on the cash sweep options offered to clients when they open their accounts.

According to AdvisorHub, Wells Fargo Advisors offers three cash sweep options for client funds in advisory accounts. The options include two that place cash in interest-bearing bank accounts and a third that invests in money market funds. Upon opening an account, clients are automatically assigned to a default option based on the account type and advisory program they are using.

Currently, Wells Fargo's bank deposit sweep rates vary based on assets, starting at 0.15 percent for households with less than $1 million and reaching a peak of 1.30 percent for those holding $20 million or more. The Money Market Fund Sweep is typically reserved for government accounts, insurance companies, banks, and credit unions. It invests in the AllSpring Government Money Market Fund, which had a 4.93 percent yield as of October 31.

In a July Form ADV filing, Wells Fargo acknowledged a conflict of interest. The bank receives payments from affiliated banks for client cash, but those payments decrease as it pays clients higher interest rates. According to the Form ADV brochure, the company chooses to include those options as default Cash Sweep options in advisory programs instead of selecting other cash investment options that generate financial benefits and typically result in higher interest rate payments.

 

Eccleston Law LLC represents investors and financial advisors nationwide in securities, employment, transition, regulatory, and disciplinary matters.

Tags: eccleston, eccleston law, sec

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