The cash sweep lawsuits continue to pile up, as Ameriprise Financial and LPL Financial were hit again this week with class action suits calling them to task for “paltry” interest rates paid to clients on their cash sweep accounts, made while the federal funds rate is at the highest it’s been in decades.
The new legal actions bring the total suits for each firm to three. While Ameriprise and LPL aren’t the only firms to be accused of unreasonably profiting from the spread between what they make on cash sweep accounts and what they pay out to the customers who own the accounts, other firms like Wells Fargo, Merrill Lynch and Morgan Stanley have raised their rates.
Not so LPL and Ameriprise.
While not commenting on this week's complaint specifically, Ameriprise's press office issued a statement in response to the recent spate of lawsuits. "Our cash sweep is intended for money in motion, not as an investment option for significant cash balances over extended periods," the statement said. "Our programs comply with legal and regulatory requirements."
Similarly, LPL's press outreach said, "Designed primarily for operational cash holdings, our FDIC-insured cash sweep vehicle prioritize sercurity, liquidity and yield—in that order. We also offer investment options suitable for a longer-term horizon, such as money market funds, CDs, and fixed income funds," a spokesperson said. "This flexibility allows our clients to tailor their investment strategies to align with their risk tolerance and financial goals."
New York resident Mindy Bender yesterday filed a class action lawsuit in the U.S. District Court for the District of Minnesota. According to the lawsuit, Bender had an IRA with Ameriprise for which cash was swept into a low-interest-bearing bank account for which she received 0.35% interest.
The lawsuit specified two Ameriprise cash sweep programs as allegedly being problematic: Ameriprise Insured Money Market Account (AIMMA) and the Ameriprise Bank Insured Sweep Account (ABISA). According to the lawsuit, the AIMMA program swept funds to Ameriprise Bank and other non-affiliated banks, but the ABISA program used only Ameriprise Bank.
The lawsuit identified three areas where Ameriprise allegedly put its own interest above that of its customers: Ameriprise allegedly took most of the compensation provided by the unaffiliated banks without passing it on to its customers; allegedly directed the majority of deposits to Ameriprise Bank, providing only a minimal return to its customers; and allegedly concealed the way in which it benefited from the use of customer funds by generating “inaccurate, misleading or oblique disclosures,” the lawsuit said.
“Lastly, Ameriprise failed to disclose to its customers that its affiliate, Ameriprise Bank, to which it directed the majority of its customers’ cash under the programs, was not a typical bank and instead had been created and was at all relevant times operated for the primary purpose of taking advantage of the cash in Ameriprise’s customers’ accounts,” the suit said.
In Bender’s case, an Ameriprise brochure in 2021 provided an example: Ameriprise would receive 2.35% interest from the unaffiliated bank and pass 0.35% interest to Bender’s account, the lawsuit said.
And rather than express Ameriprise’s share as compensation, Ameriprise allegedly tried to hide the relationship by calling the retained interest a reimbursement, the lawsuit said.
Bender charged Ameriprise with breach of fiduciary duty, gross negligence, unjust enrichment and breach of contract, and asked for damages, injunctive relief, attorneys’ fees and costs, and prejudgment interest, along with a jury trial.
The second Ameriprise suit was filed yesterday by California resident Mark Frey yesterday, also in the U.S. District Court for the District of Minnesota.
He had advisory retirement and traditional brokerage accounts with Ameriprise since 2003, “and so for years has automatically swept his uninvested cash into the affiliated banks that Ameriprise selects in its discretion at rates ranging from 0% to 0.30%, which Ameriprise negotiated for its benefit pursuant to the Ameriprise Sweep Program,” the lawsuit said.
In 2022 and 2023, the programs offered “paltry” rates, from 0.0% to 0.30%, the lawsuit said, adding that at the same time, Ameriprise competitors such as Interactive Brokers, MooMoo, Vanguard and Webull, were paying between 4.83% and 5.0% on their sweep programs.
Frey’s lawsuit charged the firm with breach of fiduciary duty, breach of contract, gross negligence, breach of the implied covenant of good faith and fair dealing, and unjust enrichment.
“While Ameriprise customers have earned low rates of return on their uninvested cash, in contrast, Ameriprise has earned significant net interest income from its cash sweep program,” the lawsuit said. “Ameriprise’s net income for the 12 months ending June 30, 2024, was $3.068 billion, and its annual net income for 2023 was $2.556 billion.”
Another LPL Suit
The LPL suit, filed Tuesday by California resident Hieu Vu in U.S. District Court for the Southern District of California, also claimed breach of fiduciary duty, gross negligence, breach of implied covenant of good faith and fair dealing, breach of contract and unjust enrichment.
Vu has had an investment account and a strategic asset management account with LPL since 2021, the lawsuit said. From 2022 to 2024, the rate of return on customer sweep accounts was between 0.16% and 0.35%, it stated.
“While LPL customers have earned low rates of return on their uninvested cash, in contrast, LPL has earned significant net interest income from its cash sweep program,” the lawsuit claimed. “For example, in its 2016 annual report, LPL reported that its asset-based revenue for the year ending December 31, 2016, had increased by $62.8 million from the same period the year before, and that most of that increase was attributable to its cash sweep programs.
“By 2024, the profits the firm makes from holding clients’ cash are now greater than the combined earnings from advisory fees, commissions, and interest combined.”