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Wells Fargo pays $35 million penalty over excessive advisory fees

On Behalf of | Sep 1, 2023 | Regulatory Investigations

The Securities and Exchange Commission has charged Wells Fargo Clearing Services LLC and Wells Fargo Advisors Financial Network LLC over excessive advisory fees, CNBC reports.

Wells Fargo agreed to pay a $35 million civil penalty to settle the SEC’s charges.  The case involves certain clients who opened accounts prior to 2014 and were charged fees through the end of December 2022.  It was determined that Wells Fargo overcharged over 10,900 investment advisory accounts more than $26.8 million in advisory fees.

According to the SEC’s order, certain financial advisers from Wells Fargo and its predecessor firms agreed to reduce the firms’ standard, pre-set advisory fees for certain clients and made handwritten or typed changes on the clients’ investment advisory agreements reflecting the reduced fees at the time the accounts were opened.

But in some cases, the firm’s account processing employees failed to enter the agreed-upon reduced rates into the billing systems when setting up the clients’ accounts.

The SEC added that Wells Fargo failed to implement written compliance policies and procedures reasonably designed to determine whether its billing systems contained accurate data and to prevent overbilling of clients.

“For years, Wells Fargo and its predecessor firms negotiated reduced advisory fees with thousands of clients, but failed to honor them, overcharging those clients millions of dollars as a result,” said Gurbir S. Grewal Director of the SEC’s Enforcement Division. “Today’s enforcement action underscores the need for firms growing their businesses through acquisition to ensure that their growth does not come at the expense of client protection.”

Wells Fargo paid affected accountholders about $40 million, including interest, to reimburse them for the excessive fees.

The firm did not admit or deny the SEC’s charges, but consented to the entry of the finding that it violated Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7 and agreed to a cease-and-desist order and censure.

Wells Fargo was pleased to have resolved the matter, said company spokesperson Caroline Szyperski.

“The process that caused this issue was corrected nearly a decade ago,” Szyperski said. “And, as noted in the settlement documents, Wells Fargo Advisors conducted a thorough review of accounts and has fully reimbursed affected customers.”

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