Merrill Lynch has agreed to pay $39 million to resolve a class action lawsuit alleging it paid near-zero interest on cash balances in retirement accounts, according to a filing in Manhattan federal court. The settlement, filed late Wednesday, requires approval by U.S. District Judge Valerie Caproni. It covers holders of Merrill Edge online accounts between December 15, 2016, and March 15, 2020, who allegedly received annual yields of 0.05% to 0.14% while other brokerages offered around 2%.
The latest payout adds to a $25 million penalty the Securities and Exchange Commission imposed in January 2025 for similar shortcomings in advisory accounts. Combined, the two actions total $64 million. A Merrill spokesperson did not respond to requests for comment.
The cash sweep controversy has dogged the wealth management industry for years. The SEC has been examining how firms handle client cash since at least 2022, when interest rates began climbing from pandemic-era lows. The regulator's most notable settlement came in 2022, when Charles Schwab Corp. paid $187 million to resolve allegations it failed to disclose sweep options.
For registered investment advisors, the fiduciary duty extends to cash management. Advisors must seek competitive returns on all client assets, including cash, and avoid relying on a single product. The Merrill case highlights the tension between client interests and broker-dealer profitability, as firms historically earned significant revenue from the spread on swept balances.
Interest rates were near zero after the 2008 financial crisis, squeezing this profit center. They rose modestly before the COVID-19 pandemic, then collapsed again as the Federal Reserve slashed rates to stimulate the economy. Since January 2022, however, the Fed has lifted rates dramatically, restoring the appeal of cash sweep programs as a revenue source.
The settlement is the latest in a series of regulatory and legal actions targeting cash sweep practices. Advisors should review their own cash management policies to ensure compliance with fiduciary standards, especially as scrutiny continues.
Industry observers note that the issue is not limited to Merrill. Other large firms have faced similar claims, and the SEC's focus shows no sign of abating. For advisors, the lesson is clear: cash is an investment, and clients deserve competitive rates.
The case is In re Merrill Lynch Cash Sweep Litigation, U.S. District Court, Southern District of New York. The settlement amount will be distributed to affected account holders after court approval and any appeals.
