Barron's: BofA Cites Risk from Sweeps
Barron's writes, "Bank of America Adds Cash Sweep Accounts to Risk Factors in SEC Filing." The article tells us, "This summer, wealth management companies have been facing regulatory queries and hit with lawsuits from customers over paltry rates paid in cash sweep accounts. Now, Bank of America is warning shareholders that it too could face potential legal or regulatory risks related to 'the rates paid on uninvested cash in investment advisory accounts that is swept into interest-paying bank deposits,' according to the company's most recent 10-Q filing with the Securities and Exchange Commission.... A company representative declined to comment. But the addition to a list of potential risks is notable given the raft of lawsuits filed against competitors such as Morgan Stanley, LPL Financial, and Ameriprise Financial. On Monday, Morgan Stanley disclosed in a regulatory filing that the SEC has been seeking information about its sweep account policies." The piece adds, "Mounting legal and regulatory woes have been a point of concern for shareholders and analysts because that could result in pressure on firms to pay more in interest on customer cash. Such a move would eat into net interest income, a key profit center for some wealth management companies. Wells Fargo and Morgan Stanley have both announced in recent weeks that they increased interest rates on some sweep cash balances." Morgan Stanley's 10-Q filing contains the language (on page 68), "The Firm has been named in two putative class actions regarding cash sweep programs for retail clients. On February 1, 2024, E*TRADE Securities LLC (E*TRADE) and Morgan Stanley Smith Barney LLC (MSSB) were named in Burmin, et al. v. E*TRADE Securities LLC, et al., filed in the United States District Court for the District of New Jersey, alleging that, from February 2018 to present, E*TRADE (and post-merger MSSB) breached customer agreements by failing to pay a reasonable rate of interest to Individual Retirement Account holders on cash balances swept to affiliate bank deposit programs. A motion to dismiss is pending. On June 14, 2024, MSSB and other Firm entities were named in Estate of Sherlip, et al. v. Morgan Stanley, et al., filed in the United States District Court for the SDNY, alleging the defendants failed to pay a reasonable rate of interest to brokerage, retirement, and advisory account holders on cash balances swept to affiliate bank deposit programs. The class action complaints seek, among other relief, certification of the class of plaintiffs and unspecified damages."
