LPL and Ameriprise hit it off again with cash-strapped lawsuits

Lawsuits on companies cash sweeps policies. piled on even more this week with new actions against Ameriprise and LPL Financial.

Minneapolis-based Ameriprise was hit Wednesday with two new alleged class-action lawsuits alleging it shares with clients too little of the money it earns from their uninvested cash held in brokerage and advisory accounts. This followed a similar lawsuit filed against LPL on Tuesday.

The actions come as the latest wave of litigation to hit wealth managers over alleged abuses of their cash disposal policies. Ameriprise and LLP they are already involved in previous suits, as are their rivals Morgan Stanley, Wells Fargo and Merrill.

Many of the actions essentially make the same claim: That companies capitalize on their profits investing or borrowing clients’ uninvested brokerage cash and then keeping the vast majority of the returns for themselves. For example, one of the most recent lawsuits against Ameriprise — filed on behalf of Mindy Bender, a former client who lives in New York — alleges that the firm sweeps the vast majority of customers’ uninvested cash into its Ameriprise bank affiliate.

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Ameriprise, according to the suit, does not disclose how much of the profits it generates is kept for itself and how much goes to investors. The lawsuit claims that Ameriprise should have made it clear that its affiliate bank is not really like other banks.

“At all relevant times, Ameriprise Bank was operated primarily to take advantage of cash in Ameriprise customer accounts that was directed to it through the Bank Deposit Verification Programs,” according to the suit. “This made Ameriprise a servant with two masters, beholden primarily not to its customers but to Ameriprise Bank. Indeed, Ameriprise Bank’s assets – approximately 90% if not more – are cash received from Ameriprise customer accounts pursuant to the Programs.”

Defenders of cash receipts often argue that the accounts are for money that is only held temporarily before it is placed in stocks, bonds or other investments.

An Ameriprise spokesperson said: “Our cash washing is intended for cash in motion, not as an investment option for significant cash balances over long periods. Our programs comply with legal and regulatory requirements.”

New suits, familiar claims

Like many of the other lawsuits, the latest action against Ameriprise accuses the firm of breaching its fiduciary duties by failing to make adequate disclosures and disregarding clients’ interests. It also alleges gross negligence, violations of Minnesota state law and other violations.

The firms that brought the suit, Berger Montague of Philadelphia and Rosca Scarlato of Beachwood, Ohio, have previously filed against Wells and LLP. Michael Dell’Angeloan executive shareholder at Berger Montague and one of the attorneys working on the cases, said it’s worth noting that some firms have begun to change their disclosures after regulators and lawyers began questioning their programs. cash scan.

Wells Fargo, for example, disclosed in a regulatory filing last year that the Securities and Exchange Commission is making inquiries about its cash-out program. After that and lawsuits against some of Wells’ rivals, Wells changed the language in his disclosures.

“The fact that major brokers have changed their disclosures about how their cash verification programs work and what customers should expect is certainly an indication that they have recognized that the disclosures being challenged are problematic and may not was consistent with their fiduciary duty,” Dell’ Angelo said.

Firms have also made changes to the rates they pay for checking accounts. Wells said in its second quarter earnings that a recent rate hike would cost $350 million this year. Dell’Angelo’s lawsuit against the company calls that figure “evidence of the massive profit the Programs provide to defendants at the expense of clients (Wells Fargo Advisors).”

Morgan Stanley also expects an as-yet-unspecified hit to its bottom line from changes to its control policies, and UBS is forecasting a $50 million bite from its net gains from its decision to raise rates in the fourth quarter.

Law firms are piling up

Dell’Angelo said he and his colleagues are looking at other wealth managers and there is a chance more family names will be hit with similar actions.

“There are a lot of institutions that could be affected by these types of allegations,” Dell’Angelo said. “We’re going through a process of sorting through and understanding where these programs might be problematic and where they might not be.”

Other law firms are meanwhile entering the fray. So far, the bulk of the cash collection cases have been filed by Dell’Angelo’s group and other legal team consisting of attorneys from Simmons Hanly Conroy in San Francisco, Williams Dirks Dameron in Kansas City, and Oakes & Fosher in St. Louis.

Another firm, Gibbs Law Group of Oakland, Calif., came out earlier this month with the third lawsuit related to the sweep filed so far against Wells Fargo. The same legal team brought the new trial against LPL this week on behalf of a California resident named Hieu Vu. Gibbs also works with Berger Montague the second lawsuit this week directed against Ameriprisefiled on behalf of a California resident named Mark Frey.

Separately on Thursday, New York-based firm Bernstein Litowitz Berger & Grossmann said it was forming a task force seeking to represent clients and depositors “who believe their cash holdings have been improperly moved into low-interest accounts by banks and brokerages’. The firm is holding a webinar on Monday afternoon to hear from people who believe they may have been injured.

Adam Wierzbowski, partner at Bernstein Litowitz Berger & Grossmann, said: “Our investigation is far-reaching and not limited to brokerages that are the focus of ongoing regulatory investigations or class actions.”

Sweep changes could mean higher advisory fees

Meanwhile, industry analysts have been trying to understand what all this scrutiny of cash-sweeping policies might cost firms in the long run. Moody’s Ratings researchers noted in a recent report on cash receipts that regulatory probes and lawsuits are putting firms under some pressure to raise their rates.

But more of the drive to increase testimonial payouts comes from the simple need to compete for investors’ cash, according to the report. With many firms raising their rates, wealth managers who don’t follow suit may struggle to retain clients.

Moody’s report finds that large centers such as Morgan Stanley and Wells Fargo are best insulated from any earnings hit due to their diversified lines of business. Broker-dealers such as Charles Scwhab and Raymond James could be more exposed, according to Moody’s, because they have fewer alternative sources of income to lean on.

“If competition intensifies and rates rise in the industry, wealth managers may try to compensate by charging new or higher fees elsewhere in their business; for example, by increasing advisory fees and commissions, reducing payments to advisors, or charging new types of account fees. “, according to the report.

Jeff Schmitt, an analyst at research firm William Blair, reached a similar conclusion in another recent report on firms’ cash sweep policies. Firms, he wrote, could even consider offsetting losses by imposing custody fees of 0.02 percent or 0.03 percent on assets held in advisory accounts.

“In an account with $100,000 in assets, this would be a fee of only $20 to $30 per year, and the end customer would receive a higher return on cash in return,” Schmitt wrote.