Lawsuits against wealth management firms over interest payments on clients' uninvested cash are escalating, with Ameriprise Financial, LPL Financial, and UBS becoming the latest targets.
Two class-action lawsuits were filed last week against Ameriprise, seeking damages and injunctive relief. The plaintiffs allege that Ameriprise has an ongoing obligation to act in the best interest of its clients, which it failed to meet by keeping clients' cash in low-interest sweep accounts despite the Federal Reserve's rate increases.
"When the Federal Fund rate began rising in 2022, banks increased yields, and brokerages should have negotiated higher returns on uninvested cash from affiliated banks," argue attorneys for Mark Frey, a California resident who filed one of the cases. "Unfortunately, Ameriprise did not take appropriate action."
This language is echoed in a similar lawsuit against LPL Financial, differing only in the defendant's name. Both lawsuits are represented by the Gibbs Law Group.
The LPL case, brought by California resident Hieu Vu, also seeks class-action certification, damages, and injunctive relief.
A separate class-action suit was filed against UBS in federal court in New York, accusing the firm of providing inadequate interest payments on cash-sweep accounts, especially when compared to firms like Fidelity and Vanguard.
These lawsuits are part of a growing wave of backlash against firms' policies on interest paid on uninvested cash in sweep accounts, which have attracted both regulatory scrutiny and investor lawsuits.
Ameriprise and LPL have already faced similar lawsuits targeting their cash-sweep practices, as have Morgan Stanley and Wells Fargo.
Morgan Stanley and Wells Fargo, both of which have committed to raising interest rates on uninvested cash, have acknowledged inquiries from regulators regarding their policies.
Ameriprise and LPL both assert that their cash-sweep programs are not designed as long-term investment strategies but serve as a utility for short-term cash holdings. UBS declined to comment.
"Our cash sweep is intended for money in motion, not as an investment option for significant cash balances over extended periods," says Ameriprise. "Our programs comply with all legal and regulatory requirements."
An LPL spokeswoman states that the company does not comment on pending litigation but will "vigorously defend against the lawsuits."
"Designed primarily for operational cash holdings, our FDIC-insured cash-sweep vehicles prioritize security, liquidity, and yield—in that order," the spokeswoman says. "We also offer investment options suitable for longer-term horizons, such as money-market funds, CDs, and fixed-income funds."
