Morgan Stanley Says SEC Closed Cash-Sweep Investigation -- Barrons.com

Dow Jones
08 May

By Andrew Welsch

Morgan Stanley said the Securities and Exchange Commission's enforcement division closed its investigation into the company's cash sweep practices and doesn't intend to recommend an enforcement action against the firm.

The wealth management firm disclosed the update in its quarterly report filed with the SEC on May 5. A spokeswoman for Morgan Stanley declined to comment. A representative for the SEC didn't respond to a request for comment.

The end of the SEC investigation, which Morgan Stanley disclosed last summer, concludes ends one of several legal threats to the company based on how Morgan Stanley moves brokerage clients' uninvested cash to an affiliate bank deposit program that pays little interest to clients.

The quarterly filing notes that Morgan Stanley "is responding to requests from a state securities regulator regarding brokerage account cash balances swept to the affiliate bank deposit program." The company is also being sued by a retail investor over its cash sweep practices.

Brokerage firms have long swept clients' idle cash into sweep accounts that pay little interest. The practice garnered little attention when prevailing interest rates were near zero, but that changed in recent years as the Federal Reserve hiked its benchmark rate. With many money-market funds and online savings accounts paying 4% or more, investors have become more attuned to what they are earning on cash.

Importantly, advisory accounts are held to a different and higher standard than brokerage accounts. In July 2024, Morgan Stanley raised rates on some customers' uninvested cash in advisory accounts.

Last year, customers filed lawsuits accusing brokerage firms such as Morgan Stanley, LPL Financial, and Ameriprise Financial of breach of fiduciary duty over cash sweep practices in brokerage accounts. The SEC also began investigations of some firms' practices.

In January, Merrill Lynch and two units of Wells Fargo agreed to pay $60 million in combined penalties to settle SEC charges that they failed to consider the best interest of clients when designing automatic cash sweep programs that paid low interest rates to customers. The regulatory settlement came in the waning days of Joseph Biden's presidency.

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May 07, 2025 16:44 ET (20:44 GMT)

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