UBS is going through a lawsuit over its money sweep applications, the most recent of a number of companies, together with LPL, Wells Fargo and Ameriprise, named as defendants in comparable litigation.
South Carolina resident Kelly Goldsmith filed the go well with in opposition to 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 searching for class motion standing.
Like many companies, UBS affords “money sweep” applications through which purchasers’ extra money balances (from securities transactions or different deposits) are transferred (or “swept”) into interest-bearing accounts at completely different banks.
In keeping with Goldsmith, UBS makes more cash when consumer funds are invested in UBS money sweep applications versus different choices, and UBS units rates of interest with the banks it really works with on its money sweep applications. However Goldsmith alleges these rates of interest had been “neither cheap nor in compliance with its authorized duties.”
In keeping with the go well with, UBS supplied a number of money sweep choices for various audiences, together with retail purchasers holding trusts, retirement advisory accounts, and retail accounts that aren’t retirement advisory accounts.
Nevertheless, UBS’ annual share yields for purchasers within the sweep applications had been far decrease than these of opponents like Vanguard and Constancy. Whereas some companies mechanically sweep uninvested money into cash market funds with excessive charges of curiosity, these choices weren’t accessible to Goldsmith or different retail purchasers with money sweeps, in keeping with the criticism.
“UBS has devised a scheme by which it generates vital income utilizing purchasers’ money balances,” the criticism learn. “The scheme is devised to maximise income for UBS whereas on the similar time disregarding its purchasers’ finest pursuits – in actual fact, UBS generates curiosity earnings on its purchasers’ money balances which are orders of magnitude higher than quantities the consumer receives.”
A UBS spokesperson declined to remark for this story.
In its second-quarter earnings name, CFO Todd Tuckner stated the agency expects to “regulate the sweep deposit charges” in U.S. advisory accounts by the center of the fourth quarter, which the agency anticipated would cut back pretax income by about $50 million yearly.
UBS isn’t the one agency focused by class motion requests associated to money sweeps; in latest months, LPL, Wells Fargo, Ameriprise and others have been the topic of lawsuits filed in federal court docket. LPL and Ameriprise had been defendants in three fits filed this week alone.
Morgan Stanley and Wells Fargo have additionally disclosed SEC probes into their money sweep applications. Final month, Financial institution of America Merrill Lynch added to its SEC quarterly filings that it might face authorized and regulatory dangers on account of its money sweep applications, in keeping with 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 lately warned wirehouses and different companies that continued investigations into money sweep applications might negatively impression their credit score rankings by reducing the “spread-based income” earned on purchasers’ uninvested money and boosting authorized and regulatory prices.
Wells Fargo, BofA and Morgan Stanley all revealed they’d reassess their sweep deposit applications in latest quarterly earnings stories 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 College of Legislation) to launch a “money sweep job drive” to analyze companies’ money sweep practices, together with Wells Fargo, Ameriprise, LPL and E*Commerce, amongst others.
