Merrill Lynch and Wells Fargo Advisors will pay a total of $60 million to settle Securities and Exchange Commission charges that they lacked required policies and procedures.
Specifically, the firms failed to implement written policies and procedures to prevent violations of the Advisers Act relating to the firms’ cash sweep programs, the SEC stated in a news release.
Wells Fargo Advisors includes Wells Fargo Clearing Services LLC and Wells Fargo Advisors Financial Network LLC.
The firms offered bank deposit sweep programs as the only cash sweep option for most advisory clients and received a “significant financial benefit” from advisory client cash in the bank deposit sweep programs (BDSPs), the SEC alleges. The firms set the interest rates offered in the programs, and during periods of rising rates, the yield differential between the BDSPs and other cash sweep alternatives at times grew to almost 4%, the SEC said.
Both firms failed to adopt and implement “reasonably designed” policies and procedures to consider the best interests of clients when making cash sweep program options available to clients. Such policies also should take into account the duties of financial advisors in managing client cash in advisory accounts, according to the release.
“Cash sweep programs impact nearly all advisory clients, who often pay advisory fees on assets held in these accounts,” said Sanjay Wadhwa, acting director of the SEC’s Division of Enforcement. “These actions reinforce that advisory firms must have reasonably designed policies and procedures to consider their clients’ best interest when evaluating potential sweep options for cash held in advisory accounts and to ensure that cash held in an advisory account is properly managed by financial advisers consistent with a client’s investment profile.”
Wells Fargo Clearing Services agreed to pay a civil penalty of $28 million; Wells Fargo Advisors Financial Network agreed to pay $7 million; and Merrill Lynch agreed to pay $25 million.
The firms did not admit or deny the SEC’s findings.
