Wells Fargo & Co. disclosed on Tuesday that the Securities and Exchange Commission (SEC) is investigating its cash sweep offerings for investment advisory clients. The cash sweep feature allows such clients to earn a return on uninvested cash balances by automatically sweeping them into money market funds or other investments.
The SEC investigation comes just weeks after Wells Fargo agreed to pay a $35 million fine to the SEC to settle claims that it had charged excessive advisory fees on nearly 11,000 client accounts.
The SEC has not yet disclosed the specific focus of its investigation into Wells Fargo’s cash sweep offerings. However, the agency has previously investigated other banks for alleged cash sweep abuses, such as failing to properly disclose fees and risks to clients.
Wells Fargo said in its SEC filing that it is cooperating with the SEC investigation. The bank also said that it has taken steps to improve its cash sweep offerings, such as reducing fees and providing more transparency to clients.
What is a cash sweep feature?
A cash sweep feature is a service offered by some brokerage firms and investment advisors that automatically invests uninvested cash balances in a money market fund or other investment. This can help clients to earn a return on their cash even when they are not actively investing.
Why is the SEC investigating Wells Fargo’s cash sweep feature?
The SEC has not yet disclosed the specific focus of its investigation. However, the agency has previously investigated other banks for alleged cash sweep abuses, such as failing to properly disclose fees and risks to clients.
What could happen if Wells Fargo is found to have violated securities laws?
If Wells Fargo is found to have violated securities laws, the SEC could take a number of actions, including imposing fines, requiring the bank to take corrective action, and even suspending or revoking its registration as a broker-dealer or investment advisor.
What should investors do?
Investors who use Wells Fargo’s cash sweep feature should review their account statements carefully to make sure that they understand the fees and risks associated with the service. They should also contact Wells Fargo with any questions or concerns.
FAQ
Q: What is Wells Fargo’s cash sweep feature?
A: Wells Fargo’s cash sweep feature is a service that automatically invests uninvested cash balances in a money market fund or other investment. This can help clients to earn a return on their cash even when they are not actively investing.
Q: Why is the SEC investigating Wells Fargo’s cash sweep feature?
A: The SEC has not yet disclosed the specific focus of its investigation. However, the agency has previously investigated other banks for alleged cash sweep abuses, such as failing to properly disclose fees and risks to clients.
Q: What could happen if Wells Fargo is found to have violated securities laws?
A: If Wells Fargo is found to have violated securities laws, the SEC could take a number of actions, including imposing fines, requiring the bank to take corrective action, and even suspending or revoking its registration as a broker-dealer or investment advisor.
Q: What should investors do?
A: Investors who use Wells Fargo’s cash sweep feature should review their account statements carefully to make sure that they understand the fees and risks associated with the service. They should also contact Wells Fargo with any questions or concerns.
Q: Is my money safe in a cash sweep program?
A: Generally speaking, cash sweep programs are considered to be safe. The money market funds that they invest in are typically insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 per depositor, per account ownership type.
Q: What are the fees associated with cash sweep programs?
A: The fees associated with cash sweep programs vary depending on the brokerage firm or investment advisor offering the service. However, most programs charge a small administrative fee, and some programs also charge transaction fees.
Q: Are there any alternatives to cash sweep programs?
A: Yes, there are a number of alternatives to cash sweep programs, such as high-yield savings accounts and certificates of deposit (CDs). Investors should compare the fees, risks, and returns of different investment options before making a decision.
Q: How do I contact Wells Fargo about my cash sweep account?
A: Investors can contact Wells Fargo about their cash sweep account by calling 1-800-935-5465 or by logging into their online account and sending a secure message.
Conclusion
The SEC investigation into Wells Fargo’s cash sweep offerings is a reminder to investors to carefully review the fees and risks associated with any investment product. Investors should also contact their financial advisor with any questions or concerns.
