UBS is dealing with a lawsuit over its money sweep packages, the most recent of a number of corporations, together with LPL, Wells Fargo and Ameriprise, named as defendants in comparable litigation.
South Carolina resident Kelly Goldsmith filed the swimsuit towards UBS in New York federal court docket this week, claiming she was a buyer with retail brokerage accounts managed “on an advisory foundation” between 2013 and 2023. She’s looking for class motion standing.
Like many corporations, UBS affords “money sweep” packages wherein shoppers’ extra money balances (from securities transactions or different deposits) are transferred (or “swept”) into interest-bearing accounts at completely different banks.
In accordance with Goldsmith, UBS makes extra money when shopper funds are invested in UBS money sweep packages versus different choices, and UBS units rates of interest with the banks it really works with on its money sweep packages. However Goldsmith alleges these rates of interest have been “neither cheap nor in compliance with its authorized duties.”
In accordance with the swimsuit, UBS supplied a number of money sweep choices for various audiences, together with retail shoppers holding trusts, retirement advisory accounts, and retail accounts that aren’t retirement advisory accounts.
Nonetheless, UBS’ annual share yields for shoppers within the sweep packages have been far decrease than these of rivals like Vanguard and Constancy. Whereas some corporations mechanically sweep uninvested money into cash market funds with excessive charges of curiosity, these choices weren’t accessible to Goldsmith or different retail shoppers with money sweeps, in response to the grievance.
“UBS has devised a scheme by which it generates important earnings utilizing shoppers’ money balances,” the grievance learn. “The scheme is devised to maximise earnings for UBS whereas on the identical time disregarding its shoppers’ finest pursuits – the truth is, UBS generates curiosity earnings on its shoppers’ money balances which can be orders of magnitude larger than quantities the shopper receives.”
A UBS spokesperson declined to remark for this story.
In its second-quarter earnings name, CFO Todd Tuckner mentioned the agency expects to “modify the sweep deposit charges” in U.S. advisory accounts by the center of the fourth quarter, which the agency anticipated would cut back pretax earnings by about $50 million yearly.
UBS is just not the one agency focused by class motion requests associated to money sweeps; in current months, LPL, Wells Fargo, Ameriprise and others have been the topic of lawsuits filed in federal court docket. LPL and Ameriprise have been defendants in three fits filed this week alone.
Morgan Stanley and Wells Fargo have additionally disclosed SEC probes into their money sweep packages. Final month, Financial institution of America Merrill Lynch added to its SEC quarterly filings that it might face authorized and regulatory dangers resulting from its money sweep packages, in response to Barron’s. Wells Fargo’s most up-to-date quarterly submitting indicated it was in “decision discussions” with the fee in regards to the inquiry.
Moody’s additionally just lately warned wirehouses and different corporations that continued investigations into money sweep packages might negatively affect their credit score rankings by reducing the “spread-based income” earned on shoppers’ uninvested money and boosting authorized and regulatory prices.
Wells Fargo, BofA and Morgan Stanley all revealed they’d reassess their sweep deposit packages in current quarterly earnings reviews and calls.
This week, the New York-based legislation agency Bernstein Litowitz Berger & Grossmann teamed up with former SEC Commissioner Robert J. Jackson (now a professor at NYU Faculty of Legislation) to launch a “money sweep job drive” to analyze corporations’ money sweep practices, together with Wells Fargo, Ameriprise, LPL and E*Commerce, amongst others.