Wells Fargo settles with SEC $35m after overcharging advisory clients

Rick Steves

“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.”

Wells Fargo

The U.S. Securities and Exchange Commission (SEC) has charged Wells Fargo Clearing Services LLC and Wells Fargo Advisors Financial Network LLC, collectively known as Wells Fargo, for reportedly overcharging over 10,900 investment advisory accounts by more than $26.8 million in advisory fees.

The banking giant has agreed to pay a hefty $35 million civil penalty to settle the charges levied by the SEC.

Growth must not come at expense of clients

According to the SEC’s findings, certain financial advisers employed by Wells Fargo, along with its predecessor firms, had negotiated lower advisory fees for specific clients.

They documented these arrangements by making adjustments on the investment advisory agreements during the account opening process.

However, there was a breakdown in the implementation of these reduced fee agreements. Employees responsible for processing accounts failed to accurately input the agreed-upon fee rates into the billing systems while setting up the accounts.

Furthermore, the SEC observed that Wells Fargo had not established sufficient written compliance policies and procedures. These should have been in place to verify the accuracy of data within their billing systems, with the goal of preventing the overbilling of clients who had come on board through acquisitions of predecessor firms or were new clients. Consequently, this led to the overcharging of clients who had opened accounts prior to 2014, with the excessive fees extending through the end of December 2022.

Gurbir S. Grewal, the Director of the SEC’s Enforcement Division, highlighted the gravity of the situation, stating, “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. 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.”

In response to the SEC’s findings, Wells Fargo has paid approximately $40 million, including interest, to affected accountholders as reimbursement for the excessive charges.

While the bank has not admitted to or denied the charges, it has consented to the Commission’s order, acknowledging violations of Sections 206(2) and 206(4) of the Investment Advisers Act of 1940, as well as Rule 206(4)-7. The bank has also agreed to a cease-and-desist order and censure.

This case underscores the importance of financial institutions upholding their commitments to clients and implementing robust compliance measures to ensure accurate billing practices. The settlement is a reminder of the SEC’s vigilance in safeguarding the interests of investors and maintaining the integrity of the financial markets.

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