Wells Fargo agreed to pay $35 million to settle charges
levied by the Securities and Exchange Commission (SEC) accusing the corporation
of overcharging more than 10,900 investment advisory accounts by upwards of
$26.8 million in advisory fees.
The cease-and-desist order names Wells Fargo Clearing
Services, LLC, and Wells Fargo Advisors Financial Network, LLC, (collectively,
Wells Fargo). The order states that certain Wells Fargo financial advisers and
the company’s predecessor firms agreed to reduce the firms’ standard, offer
pre-set advisory fees for certain clients and make handwritten or typed changes
on the clients’ investment advisory agreements, reflecting the reduced fees at
the time their accounts were opened.
In certain instances, however, account processing employees
failed to enter the agreed-upon reduced advisory fee rates into the firms’
billing systems when setting up the clients’ accounts, according to the order. Wells
Fargo also failed to adopt and implement written compliance policies and
procedures suitable for determining whether the billing systems it adopted
contained accurate data and prevented overbilling clients acquired through its
predecessor firms, as well as some of its own new clients.
“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,” Director of the
SEC’s Enforcement Division Gurbir Grewal said in a release. “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. 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.”
As a result of its compliance lapses, Wells Fargo and its
predecessor firms overcharged certain clients who opened accounts prior to 2014
for advisory fees through the end of December 2022.
Wells Fargo paid affected accountholders approximately $40
million, including interest, to reimburse them for the overcharging.
In addition to the $35 million penalty, Wells Fargo
consented to the entry of the SEC’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 and agreed to a cease-and-desist order and censure. Wells Fargo agreed
to the terms of the settlement without admitting or denying the charges.