Ameriprise, LPL Sued Over Low Interest on Client Cash
What You Need to Know
At least three firms face lawsuits over their cash sweep program interest rates.
Two Ameriprise Financial clients filed a proposed class action lawsuit Monday alleging the firm used customers’ cash balances to enrich itself at clients’ expense.
The suit, filed in U.S. District Court in Minnesota, follows a similar client complaint earlier this month against LPL Financial and another last month targeting Morgan Stanley.
“This case concerns a simple ruse,” the suit againt Ameriprise states. ”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.”
The lawsuit by Ameriprise clients Susanne Mehlman and Joy Hultman contends 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.
