Two clients of Ameriprise Financial are suing the company over its cash sweep accounts, alleging a breach of fiduciary duty due to low interest rates.
Ameriprise places uninvested client funds into its cash sweep program, offering interest rates from 0.3% to 2.18% based on the balance. In contrast, money-market funds and other high-yield products are currently paying over 5%. Plaintiffs Susanne Mehlman and Joy Hultman argue that these rates are unreasonably low and fail to meet Ameriprise’s regulatory duty to prioritize clients' interests.
“Ameriprise profits more when client funds are held in the Ameriprise cash sweep program compared to other cash options,” states the lawsuit. “Moreover, the interest rates offered are neither reasonable nor compliant with the company's legal duties.”
The lawsuit seeks unspecified monetary damages and class action status for Mehlman, Hultman, and other Ameriprise clients. Lawyers from the Minneapolis firm Gustafson Gluek, representing the plaintiffs, did not comment.
An Ameriprise spokeswoman asserts that the cash sweep programs meet legal and regulatory standards. “Our cash sweep is designed for short-term liquidity, not as a long-term investment for substantial cash balances,” she said.
Ameriprise, a major wealth management firm with over 10,000 advisors and $1.4 trillion in assets, is not alone in facing such lawsuits. Morgan Stanley and LPL Financial are also defending against similar claims of fiduciary breaches over low-yielding cash sweep programs.
Cash interest rates are a critical issue for analysts and shareholders of wealth management companies, especially after Wells Fargo and Morgan Stanley announced increased rates for some client cash. This raised concerns that other firms might follow, potentially impacting net interest income—a significant profit source.
During Ameriprise’s second-quarter earnings call on July 25, CFO Walter Berman addressed questions about cash rates, emphasizing that higher-yielding products are available and that cash sweep accounts are not intended for long-term investment of substantial balances.
“We offer a range of higher-yielding products for clients holding cash long-term, which is where much of the excess cash has been allocated,” Berman stated. “Consequently, our clients’ average cash balances are around $6,000. We do not plan to change our cash sweep approach.”
The lawsuit, filed on July 29 in federal court in Minneapolis, notes that while Ameriprise offers higher-yielding options, clients must specifically request them. This contrasts with competitors like Fidelity and Vanguard, which automatically place client cash into high-yield money-market funds.
Mehlman and Hultman held multiple Ameriprise accounts, including retirement accounts where Ameriprise acted as an investment advisor with a fiduciary duty. For other accounts, Ameriprise adhered to the SEC’s Regulation Best Interest, a less stringent standard that still requires acting in clients' best interests.
The lawsuit argues that Ameriprise’s fiduciary duty mandates securing “reasonable interest rates for clients’ deposits.”
Mehlman and Hultman reside in Maryland and Florida, respectively.
