Retail investors are largely still waiting to cash in on class-action lawsuits over cash sweeps.

Wells Fargo and LPL narrowly escaped allegations they breached fiduciary duties in separate lawsuits over cash sweeps in recent weeks. A federal court in California dismissed claims of breach of contract, breach of fiduciary duty for non-advisory clients and unjust enrichment in the Wells case last month, although others allegations remain. Legal claims are also forging ahead against a laundry list of other brokerages, including Raymond James, Charles Schwab, Ameriprise and others, according to the law firm Simmons Hanly Conroy. The litigation is forcing the big brokerages to rethink how they position — and monetize — clients’ cash.

“Increasingly, RIAs have been using these brokered cash sweep products without understanding their inherent risks and conflicts,” said Gary Zimmerman, founder of the cash management platform Max, adding that brokerages often offer “dramatically worse” rates than comparable options. “Perhaps equally important, these conflicts of interest erode client trust,” he told Advisor Upside.

Sweeping Decisions

Cash sweeps programs, known in earnings reports as “net interest income,” have been around for decades, but a rash of high-profile lawsuits and investigations over the practice took the industry by storm last year. The Securities and Exchange Commission closed an investigation into Morgan Stanley’s program in May, without levying any enforcement actions, according to Reuters. Revenues in those accounts grew exponentially to over $8 billion in 2023 alone, according to an unrelated suit.

Wirehouse frenemies Merrill Lynch and two Wells Fargo advisory firms weren’t quite as lucky, with the SEC levying fines in January:

• Wells Fargo Clearing Services agreed to pay a civil penalty of $28 million.
• Wells Fargo’s FiNet paid a civil penalty of $7 million.
• Merrill Lynch agreed to pay a civil penalty of $25 million.

Under the Rug. The cash sweep programs automatically move clients’ uninvested cash into an interest-bearing account, or a money market fund, unless clients know about them and choose to opt out. One study found the sweeps cost investors upward of $500 million over a six-year period, and a separate report found firms can earn profits 10 times what they pay to customers. While a certain amount of cash should be kept in brokerage accounts to help pay for fees and trading, research shows that clients typically hold the cash outside of the portfolio in bank accounts, Zimmerman said.

“That’s smart, since holding cash directly in your own bank accounts is fundamentally safer than using a brokered cash sweep program,” he said.

Financial planning can sometimes feel like a moving target, especially during a Donald Trump administration. Here comes that curveball …

This week, the president unveiled plans to increase tariffs to at least 25% on key US trade partners including Japan, South Korea, and 12 others, while pushing the July 9 deadline for the resumption of so-called reciprocal tariff rates to Aug. 1. As a result, the markets took a small dip Monday, with the three major indexes posting their worst days in about three weeks. Only the Nasdaq has fully recovered from last Friday’s close. Sure, advisors plan for volatility, but it’s often the emotional toll on clients that’s hardest to manage. Reminding clients that it’s all about the big picture may feel exhausting right about now, but that just means it’s all the more necessary. “Our job as planners got harder for a simple reason: Telling people to think of the long game when the short-term feels suffocating is difficult,” said Ian Bloom, owner of Open World Financial Life Planning.

Tough Tariff Talk

Trump’s shifting tariff stance — which has led to the acronym TACO (Trump Always Chickens Out) — can sometimes lead to short-term turbulence more than long-term damage. Still, that’s not always clear to clients. “Most are fatigued by the constant stream of headlines,” said Trevor Johnson, founder of Dream Weaver Financial Planning. “The knee-jerk reaction is concern, but that’s where a steady hand comes in.” He reminds clients their plans are built to withstand political storms, not time them.

Certain sectors like tech could take a hit under tariffs, but announcements coming out of the White House or Truth Social should not force wealth managers to slam the brakes, Johnson added. “Many of these tariff threats are just that — threats — and will likely never materialize,” he said.

Don’t Overthink It. Today’s social and political anxiety, especially among left-leaning clients, can spill into financial fears, even when there’s no direct cause for concern, Bloom told Advisor Upside. “They see inconsistency and the erosion of major institutions as a long-term failing in the country,” he said, adding that he often tells clients historical market performance isn’t always tied to political climate. “Emotionally it can be very difficult to get clients to see a hopeful future,” Bloom said.

A win is a win, no matter how small.

In the ongoing battle for Commonwealth advisors, competition is heating up and firms are touting victories to lure wealth managers away from LPL. Osaic added Brent Bridenback and Bridenback Wealth Management, which oversees $90 million in assets, to its network of financial advisors this week. While one advisor might not seem like a major deal coming from a firm with more than $700 billion in assets under administration, Osaic used it as an opportunity to highlight the firm’s attractiveness to Commonwealth advisors who might be on the fence about going to LPL Financial.

“It feels like firms are operating with such a level of urgency, more than I’ve ever seen before,” said Stacey Frank, vice president of recruitment consultant Elite Partners. “It’s like a fire drill.”

Get Over Here

LPL announced its $2.7 billion acquisition of Commonwealth at the end of March with the goal of retaining 90% of its roughly 2,900 advisors. LPL executive Scott Posner said the firm was on track to meet that goal despite best efforts from rivals like Cetera and Raymond James to poach talent, in an interview with Barron’s at the end of May.

However, Frank sees 90% as a lofty target, and said the Commonwealth advisors she’s currently working with are a mixed bag of those who are enthusiastic about moving to LPL and those possibly seeking an alternative, citing Commonwealth’s unique culture as something they don’t want to lose.

“They had certain agreements with discretion and how they operated with their clients,” Frank told Advisor Upside. “Other firms may not be so comfortable doing it, so they’re going to miss some of that ease of doing business.”

The Choice Is Yours. Whether Commonwealth advisors stick with LPL or go elsewhere, Frank said the decision should not be made hastily. “The one question I always ask advisors: If the acquisition was not in play, would you feel like you were in the driver’s seat to go to that firm?” she said. “If the answer is ‘I’m not sure,’ then there’s a conversation to be had.”