Stifel Financial Corp. was hit with a class-action lawsuit to recover alleged damages related to its Automatic Cash Investment Service, which offers two automatic cash sweep programs — the Stifel Insured Bank Deposit Program and Stifel Insured Bank Deposit Program for Retirement Accounts.
The class-action suit, brought by Briarwood Investments Inc. on March 14 in the U.S. District Court for the Eastern District of Missouri, claims that the cash sweep accounts are highly lucrative for Stifel and Stifel’s banks "but pay unreasonably low interest rates to customers." The suit was brought against Stifel Financial; Stifel, Nicolaus & Co., Inc.; and Stifel Bank & Trust.
In 2023, for example, "Stifel reported that its banking unit earned an average of 6.08% interest on bank deposits, of which customer cash swept under Stifel’s cash sweep programs represented an average of over $9 billion," the suit states.
"In exchange for its access to customer cash, however, Stifel’s banks paid rates of interest as low as 0.01%. As a result, Stifel reported record net interest income of over $1 billion for the year," according to the suit.
The Stifel Insured Bank Deposit, or IBD, Program sweeps cash from non-retirement accounts, while the RIBD Program sweeps cash from retirement accounts.
Under these programs, Stifel sweeps uninvested cash from customers’ securities accounts into interest-bearing deposit accounts at banks affiliated with or otherwise selected by Stifel.
The sweep programs "provide several highly lucrative financial benefits" to Stifel and its affiliated banks, the suit contends.
The affiliated banks receive substantial deposits “at a price that may be less than other alternative funding sources available to them," the suit states. These deposits “provide a stable source of funds" for the affiliated banks, which they use “to support a variety of activities, including, but not limited to, each of their lending activities, if any.”
In fact, "as Stifel reported in its 2024 Form 10-K, bank deposits represent its 'largest funding source,' and those deposits 'are primarily sourced by [its] multi-bank sweep program in which clients’ cash deposits in their brokerage accounts are swept into FDIC-insured interest bearing accounts at [its] bank subsidiaries and various third-party banks,'” the suit states.
Stifel’s wholly owned subsidiaries, SN&C and SB&T, earn fees from the sweep programs, the suit states, with SN&C receiving "an aggregate, annual fee of up to $100 from the Affiliated Banks” for each participating securities account.
In addition, under the IBD Program, unaffiliated banks pay SB&T “as much as 7.00 percent annually on balances in the Deposit Accounts,” with the account agreement giving SB&T discretion to set or reduce the fee paid by each unaffiliated bank.
Stifel had a bank priority list in which Stifel ensures that its affiliated banks pay as low as 0.01% and not greater than 0.25% interest, the suit states. "Meanwhile, because of their position on the Bank Priority Lists, the unaffiliated banks generally pay rates of interest of 1.00% or greater."
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