WELLS FARGO AGREES ON LOWER ADVISORY FEES FOR CERTAIN CLIENTS BUT THEN CHARGES THEM HIGHER FEES

If you plan to take the Series 65 Exam, you haveundoubtedly been studying and thinking about rules regarding charging clientsadvisory fees. Here's a real life example of the SEC investigating how advisoryfirms charge their clients, and then unearthing a problem with Wells Fargo, oneof the largest advisory firms or banks in the world. Important takeaway fromthe SEC's actions—what you read and study for the Series 65 Exam has importantramifications on your actual work as an I.A. representative.

Wells Fargo Settles with SEC for Charging Excessive Advisory Fees

FOR IMMEDIATE RELEASE
2023-159

Washington D.C., Aug. 25, 2023 —

The Securities and Exchange Commission today charged Wells Fargo Clearing Services LLC and Wells Fargo Advisors Financial Network LLC (collectively, Wells Fargo) for overcharging more than 10,900 investment advisory accounts more than $26.8 million in advisory fees. Wells Fargo agreed to pay a $35 million civil penalty to settle the SEC’s charges. 

According to the SEC’s order, certain financial advisers from Wells Fargo and its predecessor firms agreed to reduce the firms’ 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 certain 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 the firm 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.

“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. 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.”

Bob Eder in his Study for the Series 65 Exam covers Compensation in detail in Chapter 16 on Communication with Clients.The Series 65 Exam covers Compensation, and NASAA's recently revised Series 65 Test Specifications lists Compensation under Section IV (H) (1) (1.1-1.5), so expect questions on the Series 65 Exam.

Here is the link to NASAA's new Series 65 Test Specifications. 

Study for the Series 65 Exam is available from Amazon in both paperback and Kindle e-book versions. Here is the link to Bob Eder's book on Amazon.

For questions about Bob Eder's Series 65 manual,  Study for the Series 65 Exam,  or questions in general about the Series 65 Exam, or about Compensation, feel free to email Bob Eder at bobeder@bobeder.net.
Bob Eder received his Juris Doctor (J.D.) degree from the University of Utah, Quinney College of Law, in 2001. See Bob Eder's Author Page on Amazon.com.