Wells Fargo, one of the largest banks in the United States, has agreed to pay a $35 million civil penalty to settle charges by the Securities and Exchange Commission (SEC) that it overcharged more than 10,900 investment advisory accounts more than $26.8 million in fees. The SEC announced the settlement on Friday, August 25, 2023.
How Wells Fargo Overcharged Its Clients?
According to the SEC’s order, certain financial advisers from Wells Fargo and its predecessor firms agreed to reduce the standard, pre-set advisory fees for certain clients and made handwritten or typed changes on the clients’ investment advisory agreements that reflected the reduced fees at the time their accounts were opened. However, in some instances, the account processing employees at Wells Fargo and its predecessor firms failed to enter the agreed-upon reduced advisory fee rates into the firms’ billing systems when setting up the clients’ accounts.
Additionally, Wells Fargo failed to adopt and implement written compliance policies and procedures reasonably designed to determine whether the billing systems it adopted contained accurate data and to prevent overbilling of the clients that it acquired through its predecessor firms and certain of its own new clients. As a result, Wells Fargo and its predecessor firms overcharged certain clients who opened accounts prior to 2014 for advisory fees through the end of December 2022.
The Impact of the Overcharging on the Clients
The SEC’s order found that Wells Fargo’s overcharging affected nearly 11,000 investment accounts over a period of more than eight years. The overcharged fees ranged from less than $1 to more than $100,000 per account, with an average of about $2,500 per account. The overcharging reduced the value of the clients’ investments and diminished their returns.
The SEC also found that some of the overcharged clients were elderly or retired individuals who relied on their investments for income. Some of the clients complained to Wells Fargo about the excessive fees, but the firm did not adequately address their concerns or refund their money until after the SEC’s investigation began.
Wells Fargo’s Response and Remediation
Without admitting or denying the SEC’s charges, Wells Fargo consented to the entry of the Commission’s order finding that it 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 also paid affected accountholders approximately $40 million, including interest, to reimburse them for the overcharging.
Wells Fargo said in a statement that it “cooperated fully with the SEC throughout this matter” and that it “has made significant enhancements to its policies, procedures and technology systems related to fee billing.” The firm also said that it “is committed to providing transparent pricing and value to its clients.”
The SEC’s Message to Investment Advisers
The SEC’s enforcement action against Wells Fargo underscores the need for investment advisers to adopt and implement effective compliance systems and policies to ensure that they honor their agreements with their clients and charge them accurate fees. The SEC also warned that it will continue to hold accountable firms that fail to protect their clients from overbilling.
“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,” said Gurbir S. Grewal, Director of the SEC’s Enforcement Division. “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.”
