U.S. Securities and Exchange Commission charges Wells Fargo advisory firms and Merrill Lynch over cash sweep compliance failures and orders USD 60 million in penalties

The U.S. Securities and Exchange Commission announced settled charges against registered investment advisers Wells Fargo Clearing Services LLC, Wells Fargo Advisors Financial Network LLC, and Merrill Lynch, Pierce, Fenner & Smith Incorporated for failing to adopt and implement written policies and procedures reasonably designed to prevent violations of the Investment Advisers Act related to their cash sweep programs. The firms agreed to pay USD 60 million in combined civil penalties. According to the SEC’s orders, the firms offered bank deposit sweep programs (BDSPs) as the only cash sweep option for most advisory clients while receiving significant financial benefit from client cash placed in BDSPs. The orders found that the firms or their affiliates set BDSP interest rates and that, during periods of rising interest rates, the yield differential versus other cash sweep alternatives at times grew to almost 4 percent. The SEC alleged the firms lacked reasonably designed policies and procedures to evaluate sweep options in clients’ best interests, including during rising-rate periods, and to set out financial advisers’ duties in managing client cash in advisory accounts. Without admitting or denying the findings, the firms consented to orders requiring censure and cease-and-desist relief, with civil penalties of USD 28 million (Wells Fargo Clearing Services), USD 7 million (Wells Fargo Advisors Financial Network), and USD 25 million (Merrill Lynch).