Wells Fargo Agrees to Pay $35 Million for Overcharging Advisory Accounts
The registered investment adviser overbilled clients with custom rates by maintaining inadequate procedures, the SEC said.
Wells Fargo agreed to pay a $35 million civil penalty to the Securities and Exchange Commission for overcharging client advisory accounts, adding to $40 million in compensation the firm already paid to affected clients in June to reimburse them for overcharges.
The SEC found that from 2002 through 2022, Wells Fargo had overcharged approximately 10,900 advisory accounts for a total of $26.8 million, and that it did not maintain reasonable procedures to prevent this.
According to the charges brought by the SEC, Wells Fargo maintained default or “shelf” agreements for new advisory clients. Occasionally, advisers would negotiate lower fees with a particular client and would note the fee changes in handwritten or typed notes in the agreement. Those manually-entered changes were not always transferred into the client’s account information by Wells Fargo’s billing department, which resulted in those clients being charged the higher “shelf” rate.
The SEC alleges that Wells Fargo required the billing department to send the client information back to the adviser who closed the agreement but did not require the adviser to confirm receipt of that information or to double-check it for accuracy. The SEC marked those practices as a flaw in Wells Fargo’s policies.
The SEC also noted that Wachovia and AG Edwards merged in 2007 and then that combined entity was acquired by Wells Fargo in 2008, bringing approximately 891,000 advisory accounts to Wells Fargo as a result. The SEC said that the firm never did a comprehensive review of those accounts for accuracy in billing information, another alleged policy flaw.
These issues were first discovered by the Connecticut Department of Banking, according to the SEC. Connecticut state regulators asked Wells Fargo about this issue in August 2018. Upon reviewing accounts based in Connecticut, Wells Fargo found that 145 accounts had been overbilled, 124 of which it had acquired during their earlier merger.
Wells Fargo acknowledged that it violated the Investment Advisers Act of 1940 and agreed to a cease-and-desist order and censure and the civil penalty. It neither admitted nor denied the specific charges brought by the SEC.