Merrill Lynch agrees to pay $39 million to settle cash sweep class action

Merrill Lynch agreed this week to pay $39 million to settle a class action that accused it of paying close-to-zero interest on cash held in clients' retirement accounts, InvestmentNews reported, and the preliminary settlement filed late Wednesday in Manhattan federal court now awaits approval from US District Judge Valerie Caproni. Merrill denied wrongdoing.

The class covers Merrill Edge online accounts held between December 15, 2016, and March 15, 2020, which the suit says were paid 0.05% to 0.14% while other brokerages paid about 2%, Reuters reported. The $39 million sits on top of a $25 million SEC penalty in January 2025 over interest in advisory accounts, bringing Merrill's total payments across the two actions to $64 million, InvestmentNews notes.

The populations differ, and so do the periods. The SEC's penalty concerned advisory accounts, while the class resolves claims by Merrill Edge online account holders on a different fee schedule; the class window closes in March 2020, years before the SEC's sweep focus from at least 2022, so this settlement closes an earlier stretch of the same cash-interest complaint.

The SEC has been pressing on sweep programs since at least 2022, when rates began rising, and has settled the issue repeatedly, including $187 million with Charles Schwab that year, InvestmentNews reported. Broker-dealers earn on client cash, margin lending, and banking activity more broadly; the sweep is where client cash becomes revenue, a stream that thinned when rates sat at zero after the 2008 crisis and became worth defending again once they moved.

Merrill has lately been unusually explicit about the revenue disclosures next to that one. As this publication reported in late September, the firm's updated Form ADV disclosures set out data and shelf fees of up to $1.4 million charged to third-party managers, alongside a stated financial incentive to recommend products from firms that pay for data analytics. That filing governs a different part of the business than cash and puts no figure on what the sweep earns. It does suggest that the arrangements behind the money get written down first, and the cash-sweep fight has run the same way: disclosure, then court.

InvestmentNews's reading is that firms now have to tread carefully on client cash interest because clients can again earn a decent return on cash; the SEC's enforcement record gives that reading its weight. The preliminary settlement still needs Judge Caproni's signature.