Clients of Ameriprise Financial and Wells Fargo filed proposed class action lawsuits this week alleging that the firms used customers' cash balances to enrich themselves at clients' expense.
The suits follow a similar client complaint earlier in July against LPL Financial and another in June targeting Morgan Stanley.
"This case concerns a simple ruse," sates the suit against Ameriprise, filed Monday in U.S. District Court in Minnesota.
"Instead of fulfilling its fiduciary duties, contractual obligations and a regulatory mandate to act only in the best interests of their clients, (Ameriprise Financial and related entities) implement a scheme whereby they use their clients' cash balances to generate massive profits for themselves while shortchanging their clients," it explained.
The lawsuit by Ameriprise clients Susanne Mehlman and Joy Hultman contends that the $1.4 trillion financial services company uses its cash sweep program to move customers' uninvested funds into bank accounts with interest rates "that are neither reasonable nor in compliance with its legal duties."
As of June 18, interest rates for cash sweep accounts ranged from 0.30% for balances under $100,000 to 2.18% for those $5 million and higher, the lawsuit says. These rates "are significantly lower than sweep programs at other brokerage and advisory firms," the complaint alleges.
Vanguard's sweep account, for example, pays 4.6% for balances ranging from below $100,000 to $1 million, while Interactive Brokers pays 4.83%, it says.
"The interest rates Ameriprise pays to its clients in the sweep accounts violate Ameriprise's duties to its clients because the rates are not reasonable, which constitutes a breach of Ameriprise's fiduciary and contractual duties to its clients and a violation of Regulation Best Interest," which requires broker-dealers to act in clients' best interests, the suit contends.
As an investment advisor, the suit says, Ameriprise owes clients a fiduciary duty, and, as a broker-dealer governed by Reg BI, the firm must place its clients' interests above its own.
"Ameriprise has devised a scheme in which Ameriprise makes significant profits on advisory customer cash balances, while the advisory clients, to whom a fiduciary duty is owed, actually (lose) money on their cash balances," the complaint contends.
The lawsuit, which demands a jury trial, alleges breach of fiduciary duty, unjust enrichment and breach of contract. It makes similar claims as the lawsuit filed in June against Morgan Stanley in U.S. District Court for the Southern District of New York. The plaintiffs in the two cases share at least three attorneys, court records show.
Wells Fargo Suit
On Tuesday, Wells Fargo Advisors client Keith Bujold filed a similar proposed class action complaint in U.S. District Court for the Northern District of California, contending that the company used its cash sweep programs "to generate enormous fees for itself at the expense of its customers who receive only a minimal return on their cash deposits."
