Ameriprise sued over sweep account rates
Ameriprise on Monday became the latest brokerage to be sued over its cash sweep account program, facing allegations that the company failed as a fiduciary by keeping big spreads for itself rather than giving clients higher rates.
In the complaint filed in US District Court for the District of Minnesota, two plaintiffs wrote that, “this case concerns a simple ruse: instead of fulfilling its fiduciary duties, contractual obligations, and a regulatory mandate to act only in the best interests of their clients, defendants implement a scheme whereby they use their clients’ cash balances to generate massive profits for themselves while shortchanging their clients.”
The case centers on the default holdings for brokerage clients who temporarily have assets in cash. Although customers have the option of putting their money into a Dreyfus-sponsored government money-market fund, the default is Ameriprise’s money market account, which first directs uninvested cash into the company’s affiliated bank, according to the complaint. In the case that the amount of cash exceeds the FDIC limit, the excess is swept into other banks in the program.
While the rates offered for cash sweep accounts range from 0.3 percent to 2.18 percent for Ameriprise clients, competitors like Vanguard and Interactive Brokers have options of 4.6 percent and 4.83 percent, respectively, according to the complaint.
Brokers, including Ameriprise, have a strong incentive to retain portions of the interest on uninvested cash, which boosts net interest income, the plaintiffs stated.
“Our cash sweep is intended for money in motion, not as an investment option for significant cash balances over extended periods,” an Ameriprise spokesperson said in an email. “Our programs
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