SEC sanctions investor overcharging

Advisors at Wells Fargo agreed to charge certain clients lower account fees, but those reduced fees weren’t entered into the firm’s systems, resulting in thousands of accounts overpaying millions in fees, according to the U.S. Securities and Exchange Commission (SEC).

The SEC settled with a pair of firms — Wells Fargo Clearing Services LLC and Wells Fargo Advisors Financial Network LLC — for allegedly overcharging more than 10,900 investment advisory accounts by more than US$26.8 million.

Without admitting or denying the allegations, Wells Fargo agreed to pay a US$35 million penalty to settle the SEC’s charges. It also paid approximately US$40 million in restitution to reimburse affected clients (with interest), the regulator noted.

According to the SEC’s order, the overcharging arose as advisors agreed to reduce the firm’s standard fees for certain clients, and revised their initial advisory agreements to reflect the reduced fees — yet, back-office employees sometimes failed to enter the reduced rates into the firm’s billing systems.

As a result, some clients who had opened accounts before 2014 were overcharged for years — through to the end of 2022.

The regulator also noted that the firm failed to implement compliance procedures to prevent this sort of overcharging.

The alleged overcharging involved advisors from firms that were acquired by Wells Fargo in the midst of the financial crisis when it bought Wachovia in October 2008 — a deal that included Wachovia Securities, which had itself acquired brokerage firm, AG Edwards in October 2007, creating a firm with approximately US$1.1 trillion in assets under management.

“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,” Gurbir Grewal, director of the SEC’s enforcement division, said in a release. “Investment advisers must adopt and implement policies and procedures to ensure that they honour their agreements with all of their clients, including legacy clients of predecessor firms.”

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.