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Wells Fargo paid back $40 million to nearly 11,000 clients who were overcharged for years for investment advice, the Securities and Exchange Commission said on Friday.
The bank also agreed to pay a $35 million civil penalty to settle the SEC’s allegations. Wells Fargo has neither admitted nor denied the allegations, the agency said.
Certain Wells Fargo financial advisors — including those from legacy companies acquired in a merger — have agreed to lower some clients’ standard advisory fees at the time of account opening, according to the SEC.
However, in some cases, internal systems did not reflect these reduced consulting fees, the SEC said. As a result, Wells Fargo overcharged 10,945 accounts — opened before 2014 — for many years through December, the SEC said.
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According to the agency, the bank’s $40 million refund to affected customers includes overcharges plus over $26.8 million in interest.
The bank and its predecessor companies — AG Edwards and Wachovia — did not have written policies and procedures to prevent this overcharging, the SEC said. (AG Edwards and Wachovia merged in 2007; Wells Fargo and Wachovia then merged in 2008.)
“Wells Fargo and its predecessor firms have negotiated reduced consulting fees with thousands of clients for years, but have not honored them,” Gurbir Grewal, director of the SEC’s Enforcement Division, said in a written statement.
Caroline Szyperski, a spokeswoman for Wells Fargo, said the company is “delighted to resolve this matter.”
“The process that caused this problem was corrected almost a decade ago,” Szyperski said. “And as noted in the settlement documents, Wells Fargo Advisors conducted a thorough review of the accounts and reimbursed affected customers in full.”
How high fees can eat away at savings
Studies have shown that many investors are unaware that they pay fees for financial services such as investment advice or the mutual and exchange-traded funds they hold.
That’s because the financial ecosystem often charges these fees in secret. Customers typically do not write a monthly check or withdraw money from their bank accounts for such services; Instead, companies often collect fees from a financial account, such as an individual retirement account or 401(k) plan. Fees are often calculated as a percentage of the total assets in the account.
Excessive fees can add up to large sums of money in the long run.
Consider this example from the SEC, where an investor makes an initial investment of $100,000 that returns 4% per year for 20 years: An investor paying a 0.25% annual fee versus an investor who paying 1% per year would have about $30,000 more after two decades — $208,000 versus $179,000.
Source : www.cnbc.com