Investors are filing suit against Ameriprise Financial alleging that they have been shortchanged on interest paid on their uninvested cash balances, Advisor Hub reports.
The plaintiffs are Susanne Mehlman of Maryland and Joy Hultman of Florida, who maintain retirement, advisory and traditional brokerage accounts with Ameriprise.
The two filed their suit last week in federal court in Minnesota, claiming that Ameriprise 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.”
Ameriprise offers rates as low as 0.30% on cash that it sweeps to a money market account, well below the federal funds rate of 4.12%.
The lawsuit contends the interest rates Ameriprise pays to its clients in the sweep accounts are not reasonable, which constitutes a breach of Ameriprise’s fiduciary and contractual duties to its clients and a violation of Regulation Best Interest. Reg BI requires broker-dealers to act in the best interests of their clients. The plaintiffs assert that the conduct by Ameriprise “was and continues to be extremely lucrative…but was and continues to be extremely detrimental to their clients—in flagrant violation of their duties to their clients.”
The lawsuit alleges breach of fiduciary duty, unjust enrichment and breach of contract. The investors are demanding a jury trial in which they are seeking unspecified amounts of disgorgement, damages, restitution, and attorney fees.
A spokesperson for Ameriprise said its cash sweep programs “comply with legal and regulatory requirements.”
According to AdvisorHub, Ameriprise Chief Financial Officer Walter S. Berman told analysts on the company’s second quarter earnings call last week that the rates it offers on sweep balances are “appropriate” given the short-term nature of those funds.
“Our cash sweep is a transaction account for money in motion that is in between investments or for cash to pay fees, which is similar to a bank checking account,” Berman said. “Cash sweep is not meant to be an investment option for significant cash balances over extended periods.”
Other major brokerage firms have been hit with similar lawsuits involving their cash-sweep programs in recent years, including two against Charles Schwab and Merrill Lynch that were dismissed.
The attorneys at Hyman Cotter PC were formerly senior attorneys in the SEC’s Division of Enforcement. We have also represented clients in regulatory matters while working at Morgan Stanley and in private practice at some of the world’s largest law firms. Therefore, we understand the complexities that come with being the subject of a regulatory inquiry, 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 Hyman Cotter PC at 312-291-4600 or through our online contact form for a free consultation.
