Wells Fargo’s advisor network and its clearing services have agreed to pay a $35 million civil penalty to settle SEC charges that they overcharged more than 10,900 investment advisory accounts.
The SEC charged Wells Fargo Clearing Services LLC and Wells Fargo Advisors Financial Network LLC with overcharging the accounts more than $26.8 million in advisory fees.
In addition to the civil penalty, Wells Fargo paid affected accountholders approximately $40 million, including interest, to reimburse them for the overcharging. It also consented to the entry of the SEC’s order finding that the firm violated Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7 and agreed to a cease-and-desist order and censure. Wells Fargo did not admit or deny the SEC charges.
According to the SEC’s order, some Wells Fargo advisors agreed to reduce the firms’ standard, pre-set advisory fees for certain clients and made handwritten or typed changes on the clients’ investment advisory agreements that reflected the reduced fees when the accounts were opened. But in some cases, the account-processing employees at Wells Fargo and its predecessor firms failed to enter the agreed-upon reduced advisory fee rates into the firms’ billing systems when setting up the clients’ accounts.
Also, Wells Fargo failed to adopt and implement written compliance policies and procedures to determine whether the billing systems it adopted contained accurate data and to prevent overbilling of the clients, the SEC said in a press release. As a result, Wells Fargo and its predecessor firms overcharged certain clients who opened accounts prior to 2014 for advisory fees through the end of December 2022.
“For years, Wells Fargo and its predecessor firms negotiated reduced advisory fees with thousands of clients, but failed to honor them, overcharging those clients millions of dollars as a result. Today’s enforcement action underscores the need for firms growing their businesses through acquisition to ensure that their growth does not come at the expense of client protection,” said Gurbir S. Grewal Director of the SEC’s Enforcement Division, on Aug.25.
