Wells Fargo Settles with SEC Over Excessive Advisory Fees, Pays $35 Million Civil Penalty
Wells Fargo has agreed to pay a $35 million civil penalty to resolve charges brought by the Securities and Exchange Commission (SEC) for overcharging more than 10,900 investment advisory accounts a total of over $26.8 million in advisory fees. This settlement highlights the need for stringent compliance procedures to ensure that financial firms honor their agreements with clients, even as they expand through acquisitions.
According to the SEC's order, certain financial advisers associated with Wells Fargo and its predecessor firms negotiated reduced advisory fees for specific clients and amended the investment advisory agreements accordingly. However, the issue arose when account processing employees at Wells Fargo and its predecessors failed to accurately enter these reduced fee rates into the firms' billing systems while setting up the accounts. Moreover, Wells Fargo failed to implement compliance policies and procedures to validate the accuracy of the billing systems it adopted, resulting in the overcharging of clients.
This incident affected clients who opened accounts before 2014 and persisted until the end of December 2022. These clients were charged higher advisory fees than initially agreed upon, leading to overcharging totaling over $26.8 million.
In response to this matter, Wells Fargo has already paid approximately $40 million, including interest, to affected account holders as reimbursement for the overcharging.
Gurbir S. Grewal, Director of the SEC’s Enforcement Division, highlighted the significance of client protection in business growth, emphasizing that firms should ensure that their expansion doesn't compromise client interests. He stated, "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."
By settling with the SEC, Wells Fargo neither admitted nor denied the charges brought against them. Along with the $35 million civil penalty, the financial institution has consented to the entry of the Commission's order. The order acknowledges that Wells Fargo violated Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7. As part of the settlement, Wells Fargo has agreed to a cease-and-desist order and censure, underlining the importance of ensuring proper compliance measures and client agreement adherence in the financial industry.