Wells Fargo & Co., Bank of America and Morgan Stanley are among the banks increasing interest rates they pay on client cash in sweep accounts, according to AdvisorHub. This has resulted in reductions in the amount of net interest income generated by their wealth divisions.
The moves come on the heels of a Securities and Exchange Commission investigation disclosed in November 2023 into Wells Fargo’s cash sweep options provided to investment advisory clients.
The sweep feature allows such clients to earn a return on uninvested cash balances. The bank offers three sweep options, under which uninvested cash can be deposited into interest-bearing accounts or money market funds.
The investigation focuses on cash sweep options provided to customers at the time of account opening, according to a filing by Wells Fargo.
In an earnings report released last week, Wells Fargo said it expected to lose $350 million in revenue this year as a result of raising rates on cash sweeps in advisory accounts. The bank did not give a reason for the rate hikes.
Morgan Stanley Chief Financial Officer Sharon Yeshaya had no comment on whether that firm’s increase in rates had any connection with the SEC’s actions, saying the move was the result of changing competitive dynamics.
Bank of America Chief Executive Officer Brian Moynihan was quoted as saying, “The deposit pricing changes that we made…ensure that they were at a platform that could grow.”
Two analysts for William Blair Equity Research, Jeff Schmitt and Tyler Mulier issued a report saying the Wells Fargo rate hike was likely in response to the SEC’s investigation, saying the executives’ comments “indicate that competitive pressures are on the rise for sweep rates.” Schmitt and Mulier said, ““However, we note that changes in sweep rates tend to have little effect on client retention, which means the consequences of not raising sweep rates is likely minimal.”
They added that the rate changes have “led to weakness in the stocks of wealth management custody providers.”
The attorneys at Lewitas Hyman understand the complexities that come with being the subject of a regulatory inquiry by the SEC, FINRA and other self-regulatory organizations, and we have the experience to guide and advise you through any type of regulatory investigation. If you are the subject of a regulatory proceeding, contact us at (888) 655-6002 or through our online contact form for a free consultation.
