Wells Fargo Agrees to Pay $35M to Settle SEC Charges

Wells Fargo Agrees to Pay $35M to Settle SEC Charges

U.S. bank overcharged investment advisory accounts with $26.8 million in fees.

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Finance Reporter
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Reviewed by: Lisa Barr
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Edited by: Ron Day

Wells Fargo, the fourth largest U.S. bank, agreed to pay the SEC $35 million to settle charges that the firm overcharged about 11,000 investment advisory accounts with $26.8 million in advisory fees.  

Financial advisors from Wells Fargo and firms it acquired allegedly negotiated reduced preset fees with their clients but failed to implement them, according to the Securities and Exchange Commission. This cost their customers millions of dollars, the SEC stated. The company overcharged some clients who opened accounts before 2014 for extra fees through December 2022. The firm reimbursed the affected clients about $40 million for extra fees with interest.  

The firm also failed to use proper compliance measures to guarantee customers only paid agreed-upon fees and weren’t unduly charged, according to the agency.  

Gurbir Grewal, director of the SEC’s Enforcement Division, explained that the penalty “underscores the need for firms growing their businesses through acquisition to ensure that their growth does not come at the expense of client protection.” Wells Fargo agreed to pay the fine without admitting or denying the charges.  

“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,” he said. 

Wells Fargo spokesperson Caroline Szyperski said in an email the firm was glad to resolve the issue: “The process that caused this issue was corrected nearly a decade ago. And, as noted in the settlement documents, Wells Fargo Advisors conducted a thorough review of accounts and has fully reimbursed affected customers.” 

The bank reportedly had about 12,000 advisors in its practice at the end of 2022, according to Barron’s, though as of April 2023, it ceased reporting advisor head count as part of its earnings reports. It’s a regular practice for financial advisors to negotiate advisory fees with clients, but in this case some clients never actually got the agreed upon discount.  

This isn’t the firm’s first legal troubles on the federal level. Wells Fargo was ordered by the Consumer Financial Protection Bureau to pay $1.7 billion for mismanaging more than 16 million consumer accounts last year, in addition to more than $2 billion to reimburse consumers. Federal officials said at the time it was the largest fine ever imposed by the agency, and the bank continues to operate under strict asset cap restrictions. 

The scandal also led to the ouster of two executives deemed responsible for the scandal, CEO John Stumpf, and Carrie Tolstedt, former head of Wells Fargo & Co.’s Community Bank. In May, Tolstedt reached a $3 million settlement with the SEC over fraud charges, without admitting the allegations. In 2020, Stumpf paid a $17.5 million fine and accepted a lifetime ban from the banking industry; Tolstedt, also banned, faces up to 16 months in prison

 

Contact Lucy Brewster at [email protected] 

Lucy Brewster is a finance reporter at etf.com covering asset managers, emerging technologies, and regulation. She hosts etf.com webinars and appears on Exchange Traded Fridays, etf.com’s flagship podcast. She previously was a finance fellow at Fortune Magazine where she covered markets, investment strategy, and venture capital. She has also been a freelancer writer at the publication Mergers & Acquisitions and a research fellow at the Historic Hudson Valley. 

She graduated from Vassar College in 2022 with a degree in History and was an editor of The Miscellany News, the college's award winning student run newspaper. 

Lucy lives in Brooklyn, NY, and in her free time she loves to run and find new recipes to cook.