LPL Financial Lawsuit Accuses Investment Advisor of ‘Act[ing] In Its Own Interest’ to Maximize Profits Via ‘Cash Sweeps’

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A proposed class action lawsuit has been filed against LPL Financial over the firm’s apparent practice of “sweeping” investors’ cash kept in IRA and non-IRA accounts into one of two cash sweep programs while collecting “substantial returns” for itself and paying only minimal interest to accountholders. 

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The 24-page LPL Financial lawsuit explains that the broker-dealer and registered investment adviser offers two cash sweep programs, whereby investors’ cash is “swept” daily out of their accounts and deposited into one of LPL’s cash sweep programs, the ICA Program and DCA Program. Per the suit, the ICA Program serves for LPL to channel customers’ uninvested cash kept in non-IRA accounts into a series of LPL bank accounts, while the DCA Program is for uninvested cash kept in IRA accounts to be swept into a series of LPL bank accounts. 

According to the proposed class action, LPL customers do not have a choice as to whether they participate in either the ICA or DCA Program (or into which program their account would be enrolled) and are required to do so in order to open an LPL account. The suit alleges LPL pays “minimal interest” to consumers from these accounts to investors while pocketing substantial returns for itself. 

Ultimately, LPL Financial has “continuously acted in its own interests and sought to maximize its own profits” at the expense of proposed class members, the lawsuit alleges. The suit scathes that the investment advisor’s current business model “reflects a different commercial enterprise entirely” than what consumers were led to believe. 

“Rather than primarily generating revenue from the advisory services it provides to its customers, it instead now profits in large part from placing its customers’ cash into banking and investment vehicles that are selected primarily for the benefit of [LPL], not the customer,” the lawsuit summarizes. 

The case shares that LPL around 2016 began a multi-year process to “reposition the cash holdings” in customers’ brokerage accounts into cash “investment” vehicles—the ICA and DCA cash sweep programs—that “generate substantial revenue for LPL while at the same time providing little to no benefit” to customers. Initially, the cash sweep programs began as a series of “adjustments” to LPL’s management of customers’ cash, though more recently the initiatives have morphed into “an aggressive and unlawful effort to maximize Defendant’s profits” at the expense of accountholders, the filing alleges. 

The cash sweep programs are specifically designed by LPL to ensure that the firm will always receive the vast majority of the interest earned on a customer’s cash holdings and that customers themselves will always receive only a “small fraction” of the interest their money would generate if placed in any other savings account or money market fund, the complaint charges.

“The Programs are so indifferent to the needs of Defendant’s customer cash holdings that in most managed customer accounts, Defendant’s customers lose money on their cash positions while LPL reaps substantial profits from that cash,” the case says. 

Per the suit, LPL does not disclose to customers how much of the interest generated by their money is withheld by the firm, though it claims it “may retain” up to 600 basis points in fees from the total interest payable on the aggregate cash it places for all customers into the ICA or DCA Program, the case says. 

According to the complaint, the share price of LPL stock since 2016 has skyrocketed more than 560 percent, indicating the company’s business model has not only improved just its bottom line. 

The LPL Financial class action lawsuit looks to cover all individuals who held cash positions in accounts custodied by LPL Financial, LLC and whose cash was subject to the firm’s ICA and/or DCA Programs at any time from July 17, 2028 to the present. 

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