Banking giant Wells Fargo & Company and two of its affiliates, Wells Fargo Clearing Services LLC and Wells Fargo Advisors—are being sued by an investor who alleges the firm breached its fiduciary duty by leaving clients’ cash in cash sweep accounts paying minimal interest, for which the bank was paid hefty fees.

The lawsuit is being brought by Keith Bujold, a resident of New Mexico, who has been a client of Wells Fargo Advisors, the bank’s advisory arm, since 2014. The lawsuit is seeking class action status for other customers it claims were harmed across the country.

“At all relevant times, the cash held in plaintiff’s accounts was automatically swept into low-interest bearing bank accounts … accounts for which [Wells Fargo Advisors] ultimately received fees and returns on investments far higher than what was paid out to [the] plaintiff,” said the class action lawsuit filed Wednesday in District Court in the Northern District of California.

By agreeing to an “artificially low rate to pay its customers … and keeping the difference for itself, WFA breached its fiduciary duties to its customers as their agent. WFA’s process created a clear conflict of interest that WFA fails to properly disclose or mitigate,” the lawsuit said.

The plaintiff also alleged that Wells Fargo Advisors omitted critical information from its disclosures on sweeps between 2019 and 2023, language which explains that the firm “receives fees from the affiliated banks that usually exceed the interest paid to client accounts by a substantial amount” and that “rates paid out to clients will be substantially lower than the Federal Funds Effective Rate and will not increase as quickly as the Federal Funds Effective Rate.”

Wells Fargo, which was contacted for this article, is also being investigated by the Securities and Exchange Commission, according to a disclosure the bank made in a regulatory filing in November 2023.

Third Time This Month
The firm is the third being sued over low-interest cash sweep accounts this month. Both Ameriprise Financial and LPL are being separately sued in federal courts by customers who claim they were underpaid.

The suit against Ameriprise, also filed this week as a proposed class action, came just a few days after the CEO of Minneapolis-based company said in an earnings call that the firm had no plans to change the fee structure on these accounts, which take clients’ short-term parked money and make higher interest rates on them in bank networks while they sit.

Plaintiffs Susanne Mehlman and Joy Hultman filed the lawsuit against Ameriprise in the U.S. District Court for the District of Minnesota, claiming that the company and its subsidiaries “used clients’ cash balances to generate massive profits for themselves while shortchanging their clients.”

LPL is being sued by a Michigan customer in a Southern California court on similar grounds. The plaintiff in that suit, Daniel Peters, also seeks class action status and said his uninvested, parked money had been swept into bank accounts and that he and other customers “did not have a choice whether or not to participate” in these programs.

In the past, when interest rates were near zero, cash sweeps prompted little discussion. But interest rates have since spiked under a Federal Reserve effort to control inflation, and that’s been a big boost to financial services companies’ net interest income. Customers (and their lawyers) are realizing that the cash making thin short-term rates of 0.3% could have been making much more elsewhere in money market funds or CDs.

“Ameriprise makes more money when its clients’ funds are invested in the Ameriprise cash sweep program rather than in similar cash options and equivalents,” the Mehlman-Hultman complaint says. “Moreover, when clients are in the Ameriprise cash sweep program, Ameriprise pays and/or secures interest rates on the client’s cash balances that are neither reasonable nor in compliance with its legal duties.”

“Under Ameriprise’s own analysis, an interest rate increase of 100 basis points from 2022 to 2023 would result in an estimated $1.22 billion increase in revenue for Ameriprise,” the Mehlman-Hultman continues.

This month, both Wells Fargo and Morgan Stanley said they were raising their rates on sweep accounts. Wells Fargo conceded the move would mean taking a $350 million hit in net interest income.

Both LPL and Ameriprise were resolute last week, however, saying in their earnings calls that they wouldn’t be increasing their cash sweep rates.

An Ameriprise spokesperson stressed that these are short-term accounts. “Our cash sweep is intended for money in motion, not as an investment option for significant cash balances over extended periods. Our programs comply with legal and regulatory requirements,” the spokesperson said.