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$60 Million Fine Imposed by SEC on Wells Fargo and Merrill Lynch

Colleen MacFarlane

According to several financial news reporting sites, in addition to the SEC.gov’s own website, Wells Fargo and Merrill Lynch agreed Friday to pay $60 million in total to settle SEC allegations that they didn't do enough to consider clients' best interests when placing money into what is referred to as cash sweep accounts.

The announcement came as the first major fine imposed since regulators and plaintiffs' lawyers began scrutinizing a year ago how large firms handle clients' uninvested cash.

So-called sweeps accounts have been under a microscope lately following widespread allegations that wealth managers use them to pad their bottom lines rather than benefit clients. Cash sweeps refer to firms' practice of taking uninvested cash that investors hold in brokerage and advisory accounts and moving it over to affiliated or unaffiliated banks, where it can be lent out or invested.

Numerous lawsuits have accused wealth managers of sharing too little of the resulting returns with clients. The suits also fault firms for not directing clients' money into better-paying investments such as money market funds, Treasury bonds and certificates of deposit. According to SEC.gov, the statement said both Merrill and Wells Fargo had "cash alternative" products that sometimes paid at least 4 percentage points more than sweeps accounts.

The SEC specifically accused the firms of failing to have written policies and procedures requiring advisors to consider if their sweeps policies were really in clients' best interests, or if other options might be better. Instead, according to regulators, Merrill and Wells Fargo reaped substantial financial benefits by automatically "sweeping" billions of dollars in client assets.



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