Two of the nation's largest brokerage firms have agreed to pay a combined $4.4 million to resolve allegations that they charged excessive commissions on small-dollar equity trades, according to the North American Securities Administrators Association (NASAA). The settlement, announced Tuesday, involves Wells Fargo Clearing Services, Wells Fargo Advisors Financial Network, and Merrill Lynch, and follows a multi-state investigation led by Massachusetts regulators.
The probe, which also included securities regulators from Alabama, Iowa, Missouri, Montana, New Jersey, Texas, and Washington, found that the firms levied unreasonable commissions on more than 256,000 equity transactions over a five-year period. The affected trades were typically small-dollar retail orders where percentage-based commissions became disproportionately high, a practice that state regulators say violated fair-dealing standards.
Under the terms of the settlement, the two Wells Fargo entities will pay restitution of nearly $3.9 million across approximately 228,243 transactions, while Merrill Lynch will pay about $549,000 in restitution for its portion of the violations. The period covered runs from September 30, 2020, through October 1, 2025. Customers in participating states will receive restitution plus interest, and all three firms will also pay administrative fines and investigation costs.
As part of the agreement, the firms must certify that their commission policies and supervisory procedures have been updated to ensure all charges are fair and reasonable going forward. This certification requirement is intended to prevent similar issues from recurring, according to NASAA.
“This settlement reinforces the responsibility of financial firms to review their practices and ensure customers are treated fairly,” said Elizabeth Bowling, NASAA President, in a statement. “I commend the state regulators involved for their thorough work in bringing this matter to resolution.”
The settlement is the latest in a series of regulatory actions targeting commission practices at major broker-dealers. Earlier this year, Merrill Lynch agreed to pay $39 million to settle a class action over cash sweep practices, on top of a $25 million SEC penalty. Wells Fargo has also faced scrutiny in other areas, including a recent California court ruling that limited employer liability in a harassment case.
For financial advisors, the settlement underscores the importance of reviewing commission structures, particularly for smaller trades where percentage-based fees can quickly become excessive. While the firms did not admit wrongdoing, they have agreed to the restitution and compliance changes, which may serve as a template for other states considering similar actions.
The investigation was coordinated through NASAA's multi-state task force, which has increasingly focused on retail investor protection issues. Regulators in the participating states will oversee the distribution of restitution to affected customers, with interest calculated from the date of each transaction.
This settlement also comes amid broader industry movement, as Wells Fargo FiNet has been recruiting advisors and expanding its independent channel. The compliance burden, however, remains a constant for wirehouse firms navigating both state and federal regulations.
