The SEC announced Friday that Wells Fargo returned $40 million to nearly 11,000 customers who were charged excessive amounts for investment advice. Accounts opened before 2014 were subject to the overcharges until last December. Additionally, Wells Fargo paid $35 million as a fine to the SEC, and though accepting the payment, they neither admitted nor denied any wrongdoings. It is important to remember that too much in fees can significantly reduce savings over a long period.
The Securities and Exchange Commission (SEC) said on Friday that Wells Fargo had paid back $40 million to nearly 11,000 customers whom they had overcharged on fees for investment advice over a span of years. In addition to this, Wells Fargo also agreed to a $35 million civil penalty to settle SEC charges, without admitting or denying the allegations. Specific Wells Fargo advisors, including those from merger legacy firms, had agreed to lower some clients' standard advisory fees. However, an internal system failure led to 10,945 accounts being incorrectly charged for these services, through the end of December 2020. The bank's reimbursement for these excessive fees plus interest totaled $26.8 million for affected customers. The SEC also commented that Wells Fargo and its predecessor firms had no written policies and procedures in place to prevent such a mistake. Director of the SEC's Enforcement Division, Gurbir Grewal, stated that "for years, Wells Fargo and its predecessor firms negotiated reduced advisory fees with thousands of clients, but failed to honor them." In response, Wells Fargo communications spokesperson Caroline Szyperski said the firm is "pleased to resolve this matter."
Szyperski asserted that the process that generated this problem had been rectified almost ten years ago. Moreover, the settlement papers reveal that Wells Fargo Advisors conducted an extensive investigation into the accounts and remunerated those customers who had been negatively impacted.
Studies have indicated that many investors are uninformed of the fees they pay for financial services like advice on investments or for the ownership of mutual and exchange-traded funds. This is because these fees are typically accumulated in the background. Customers normally don’t make regular payments or have money taken from their bank accounts for such services; instead, fees are regularly taken from the financial accounts, such as individual retirement accounts or a 401(k) plan. Generally, fees are calculated as a proportion of the total assets in the account. Over a long period of time, exorbitant fees can add up to large amounts of money. To illustrate, the SEC’s example makes use of an initial investment of $100,000 with 4% earnings a year over 20 years. The investor who pays a 0.25% annual fee instead of the one paying 1% a year would have a difference of about $30,000 over the two decades – that is, $208,000 totaled, versus $179,000.
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