Raymond James is the latest firm facing legal action related to its cash sweep program. This week, two investors filed suits against the brokerage seeking class actions, claiming the Raymond James Bank Deposit Program benefitted the company at the expense of customers.
Punta Gorda, Fla., resident Toni Conran filed a suit in Florida’s Southern District seeking class action against Raymond James, alleging that cash balances in her accounts were automatically transferred or “swept” into an interest-bearing bank account, Raymond James Bank Deposit Program, akin to similar policies at many other firms that have become fodder for a spate of lawsuits filed in recent weeks.
The suit alleges that Raymond James’ cash sweep program offered “unreasonably low interest rates” and that the brokerage made more money when clients invested in those programs than in similar cash options.
According to Conran, the interest rates paid to Raymond James clients with cash sweep deposits ranged from 0.25% to 3%, considerably lower than the current Federal Funds Rate target range of 5.25% to 5.5%. Meanwhile, the firm’s combined net interest income and Raymond James Bank Deposit Program fees from third-party banks increased by $1.47 billion in 2023.
“They use their clients’ cash balances to generate massive profits for themselves while shortchanging their clients,” the suit said.
The suit also alleges that Raymond James failed to “reasonably disclose its conflict of interest in securing increased net interest income at the expense of its clients” and failed to recommend “a cash sweep program that would pay a reasonable rate of interest.”
Separately, Ohio residents Raymond and Juliet Schmidlin filed suit against the firm in Florida’s Middle District with similar allegations related to the cash sweep program. Their suit also claims they saw a “minimal return on their cash deposits” and that the firm concealed the benefits they received by making inaccurate, misleading, or oblique disclosures.
“RJA also failed to adequately, if at all, disclose to its customers that it was an agent serving two masters – those being its customers on one hand, and its affiliated companies, including RJF, RJFS and RJ Bank, on the other hand,” the suit said.
Their suit also points out that Raymond James financial advisors profit from the cash sweep program.
“As the Program Agreement states, customers ‘should expect that Raymond James will share a portion of the revenues it receives from one or more of the sweep options with your financial advisor,’” the suit said.
A spokesperson for Raymond James did not return a request for comment.
Raymond James is the latest in several firms to face cash sweep-related class action suits, including complaints filed against J.P. Morgan, UBS, LPL and Ameriprise in the last couple of weeks.
Last month, Morgan Stanley revealed that it was facing SEC probes into its cash sweep programs. Wells Fargo’s most recent quarterly filings indicated that it was in “resolution discussions” with the commission about an inquiry the firm first disclosed late last year.
Moody’s has warned wirehouses and other firms that continued investigations into cash sweep programs could negatively impact their credit ratings by lowering the revenue from clients’ uninvested cash and boosting legal and regulatory costs.
In recent quarterly earnings reports and calls, UBS, Wells Fargo, Bank of America and Morgan Stanley said they were reassessing their sweep deposit programs.
