Osaic is the latest firm to face a class action lawsuit targeting its cash sweep practices.
In the suit filed in Arizona federal court, plaintiff Robert Gehring argued the firm “underpaid their customers in violation of their fiduciary duties” by undercutting the interest owed to clients. In some cases, Osaic’s rate of interest was as high as five to 21 times the customers’ paid rate.
“While remarkably profitable for Defendants, the Cash Sweep Programs violate common law, federal law and industry regulations, including Defendants’ fiduciary obligations,” the complaint read.
The suit against Osaic is the latest in an ever-growing number of calls for class actions in the past year that have targeted nearly every major financial services firm, from the wirehouses to independent behemoths like LPL and Ameriprise.
According to the suit, New Hampshire-based Gehring was originally a customer of American Portfolios before it was acquired by Advisor Group (later rebranded as Osaic).
Like many firms, Osaic runs cash sweep programs for discretionary and non-discretionary accounts. In these programs, clients’ uninvested cash (including deposits and dividends) is moved from their accounts into a money market mutual fund or bank to “convert idle cash into interest-bearing investment vehicles,” according to the complaint.
Osaic offered cash sweep programs through Pershing and National Financial Services, which established and ran deposit programs, including Osaic’s Bank Deposit Sweep Program and the Insured Cash Account Program.
Despite where clients’ money went, Osaic had the “sole authority” to set fees and interest rates on the accounts. According to the complaint, the rate was set by the firm’s “Cash Review Committee, which set rates based on, among other things, the rates paid by banks, expected changes in interest rates and rates paid by competitors (during the past several years, the Federal Reserve has hiked interest rates in an attempt to combat inflation).
But Osaic’s rates on these accounts were not “reasonable,” according to Gehring.
In 2022, American Portfolios’ interest rates were as low as 0.01%. According to the complaint, those interest rates rose under Osaic but remained excessively low. In January 2025, clients with deposits up to $99,999 had a rate of 0.15%, with the max for $5 million and above at 1.50%.
Gehring considered Osaic’s rates unreasonable even in a low interest rate environment. In the complaint, Gehring compared Osaic’s rates to competitors, including Webull’s rate at 3.75%, Vanguard’s at 3.65% and Fidelity’s at 2.19%.
“Osaic Defendants knew that their customers in the Cash Sweep Program received artificially depressed rates of interest, as low as 0.15%, and yet, purposefully designed the Cash Sweep Programs to maximize the returns they received, at the expense of their clients,” the complaint read.
Osaic did not respond to questions prior to publication.
According to a report from Moody’s last year, Osaic may be at more significant risk if it feels forced to change client sweep account rates. In the missive, Moody’s analysts wrote that “private-equity owned firms like Aretec, Osaic and Kestra have less diverse revenue flows and aggressive financial policies, including operating with significant debt leverage,” which could give them less room to maneuver (PE firm Reverence Capital is Osaic’s majority owner).
According to Moody’s report, larger publicly traded companies like Charles Schwab and Raymond James, as well as wirehouses, may have more latitude to make revisions that affect their cash sweep revenue, as their revenue streams tend to be more diversified.
Last month, the SEC charged Wells Fargo and Merrill Lynch’s advisor units with failing to supervise their cash sweep programs. The agency claimed the firms’ policies didn’t consider clients’ best interests when selecting cash sweep options. Merrill and Wells Fargo agreed to pay $60 million to settle the charges collectively.
Last year, lawsuits calling for broader class actions related to the firms’ cash sweep policies were filed against Wells Fargo, Ameriprise, LPL, UBS, Raymond James and J.P. Morgan (among others). Wells Fargo, Bank of America and Morgan Stanley were among the firms that changed their sweep pricing in response to the scrutiny.
