The Securities and Exchange Commission (SEC) has taken action against Wells Fargo Clearing Services and Wells Fargo Advisors Financial Network for overcharging thousands of investment advisory accounts.
Specifically, Wells Fargo overcharged more than 10,900 investment advisory accounts more than $26.8 million in advisory fees from 2014 through the end of 2022.
Certain financial advisers from Wells Fargo and its predecessor firms agreed to reduce the firms’ standard, pre-set advisory fees for certain clients, according to the SEC. The company made handwritten or typed changes on the clients’ investment advisory agreements that reflected the reduced fees at the time their accounts were opened.
However, in certain instances, the account processing employees at Wells Fargo and its predecessor firms failed to enter the agreed-upon reduced advisory fee rates into the firms’ billing systems when setting up the clients’ accounts. Further, Wells Fargo failed to adopt and implement written compliance policies and procedures designed to prevent overbilling of the clients that the firm acquired through its predecessor firms and certain of its own new clients. This led to certain clients being overcharged for advisory fees during this period.
“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,” Gurbir Grewal Director of the SEC’s Enforcement Division said. “Investment advisers must adopt and implement policies and procedures to ensure that they honor their agreements with all of their clients, including legacy clients of predecessor firms.”
Wells Fargo agreed to pay a $35 million civil penalty to settle the SEC’s charges. Wells Fargo also paid affected accountholders approximately $40 million, including interest, to reimburse them for the overcharging.
Additionally, without admitting or denying the SEC charges, Wells Fargo consented to the entry of the commission’s order finding that the firm violated Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7. It also agreed to a cease-and-desist order and censure.