Wells Fargo and two of its brokerage units have agreed to pay a preliminary settlement of $79m (£60.6m, €71.6m).
The move is intended to bring to a close a class-action lawsuit in which an adviser alleged he had been cheated out of $200,000 in deferred compensation.
Brokers, like plaintiff Robert Berry, can accrue hundreds of thousands of dollars — if not millions — in deferred compensation at large institutions, making restrictions on when and how a broker can get his hands on the money, a highly contentious issue for some advisers.
But, in some institutions, deferred compensation plans are now mandatory for brokers and advisers. Critics of the wirehouses claim that part of advisers’ pay is being held captive.
Berry worked at Wells Fargo Advisors and predecessor firms from 1994 to 2014, according to his BrokerCheck report. He then became registered with LPL Financial and opened his own wealth management firm, Berry Financial Group.
In the best interest
“While Wells Fargo has consistently denied the allegations in this class action lawsuit involving former financial advisers, we also believe that resolving this matter is in the best interest of the company,” wrote spokesperson Shea Leordeanu in an email.
The proposed settlement affects former advisers, not those currently working under the various Wells Fargo business channels.
The main change is that any deferred pay or awards are held in a modified plan. Otherwise, there are no other significant changes.
Berry’s amended complaint, filed on 1 May 2017, took aim at a “forfeiture clause” in two deferred-compensation plans.
It alleged that the plans constitute pension benefits under the Employee Retirement Income Security Act (Erisa), and as such, unvested deferred compensation is not forfeitable.
He claimed the lawsuit violated the Act’s vesting rules.
Awaiting court approval
He filed an additional amended complaint in October 2018, and his attorneys argued that the Wells Fargo Advisors’ plans violated Erisa’s funding, vesting and non-forfeitability rules, along with others.
After Berry resigned and started his own firm, “Wells Fargo used the forfeiture clause to deny [him] his deferred compensation”, according to the complaint.
“Wells Fargo did the same to other departing employees.”
The court must approve the settlement terms for it to be final.
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