Two customers claim the firm prioritized profits by keeping sweep account interest rates artificially low. It's the latest in a line of cash sweep suits brought against industry firms.
Osaic has been hit with a class action suit claiming the firm put its own profits ahead of customers in how it has handled its various cash sweep programs.
In the suit filed in Arizona federal court, Osaic customers Robin Nackman and Douglas Whittaker accused Osaic of a “dramatic underpayment of interest” to their customers, violating their “contractual, implied and/or fiduciary obligations” to the plaintiffs.
“Despite its representation to the contrary, Osaic categorically has not adjusted interest rates paid to customers based on economic or prevailing market factors, but rather has kept the sweep rates artificially depressed as to reap substantial profits for itself,” the complaint read.
In the complaint, Nackman and Whittaker argue that typically, uninvested cash from customer accounts is moved (or “swept”) into interest-bearing accounts, generating client returns.
In Osaic's case, customers with brokerage, advisory and IRA accounts can all access sweep accounts via sweep programs for accounts introduced to their clearing firms, Pershing and National Financial Services, which are responsible for establishing deposit accounts at each program’s bank, depositing, withdrawing and transferring cash to, from and within the accounts.
Nackman and Whittaker alleged that Osaic kept the interest rates for their cash sweep accounts “artificially low,” while earning higher interest rates on the deposits from so-called “fees” paid by the participating banks.
Firms in the industry have continued to face similar class action suits, including Osaic itself; a customer filed a similar suit in early 2025, which is still ongoing, though several of the initial complaints have been dismissed.
In the past several months, plaintiffs have filed class actions against firms such as Betterment and Commonwealth, alleging claims similar to those detailed in the Osaic suit; though the rate of class action complaints against firms seems to have declined somewhat since 2025.
Regulators at the Securities and Exchange Commission also launched their own investigations into large brokerages, including Merrill Lynch, Wells Fargo and Morgan Stanley (the commission settled charges against the first two firms in January 2025 and closed its inquiry into Morgan Stanley without enforcement action the following May).
The agency also dropped a similar inquiry into LPL Financial earlier this year.
In the latest case, according to the plaintiffs, the banks benefited from the “significant” cash Osaic offered through the sweep programs, which the banks used for investment or lending purposes. The fees paid by the banks reduced the interest paid on customers’ cash balances in the sweep accounts.
“Osaic has thus established a practice whereby Osaic makes significant profits on its client cash balances whereas the client, to whom a fiduciary duty or duty to act in the client’s best interest is owed, loses money on his or her cash balances compared to other instruments of comparable risk, because the interest the client earrings in his cash sweep account is less than the fees Osaic collects,” the complaint read.
The plaintiffs also alleged that the interest rates among Osaic competitors (including Vanguard, Fidelity and Baird) were “significantly higher” than Osaic’s rates for similar sweep programs. Even when the Federal Reserve raised interest rates over the past several years, the plaintiffs claim Osaic kept its rates steady.
In the suit, the two plaintiffs are asking the court to declare it a “proper class action” and want the defendants to pay “actual damages” (including punitive damages) and other profits.
In a statement, an Osaic spokesperson said that “we deny the allegations and will be defending this matter vigorously. We do not comment further at this time as the matter is pending.”
Facts Only
* Robin Nackman and Douglas Whittaker filed a class action suit against Osaic in Arizona federal court.
* The plaintiffs accused Osaic of underpaying interest to customers via cash sweep programs.
* The complaint alleged Osaic kept sweep rates artificially depressed instead of adjusting them based on economic or market factors.
* Customers argued that uninvested cash was swept into interest-bearing accounts to generate client returns.
* Plaintiffs alleged that the banks benefited from the significant cash provided by Osaic, using it for investment or lending.
* Plaintiffs claimed that fees paid by banks reduced the interest paid on customer cash balances.
* Plaintiffs asserted that Osaic’s rates were lower than those offered by competitors like Vanguard, Fidelity, and Baird.
* Osaic stated it denies the allegations and will defend the matter.
* Firms in the industry have faced similar class action suits, including against Betterment and Commonwealth.
* The Securities and Exchange Commission investigated large brokerages including Merrill Lynch, Wells Fargo, and Morgan Stanley.
Executive Summary
Customers Robin Nackman and Douglas Whittaker filed a class action suit against Osaic in Arizona federal court, accusing the firm of underpaying interest to customers through its cash sweep programs. The plaintiffs alleged that Osaic kept sweep interest rates artificially low rather than adjusting them based on economic factors or market conditions. They claimed that uninvested customer cash was swept into interest-bearing accounts, generating client returns, but Osaic allegedly earned higher profits from "fees" paid by participating banks.
The lawsuit further contended that the banks benefited significantly from the cash Osaic offered through sweep programs, which they used for investment or lending, effectively reducing the interest paid to customers. Plaintiffs also asserted that competitor firms offered significantly higher rates than Osaic, even when the Federal Reserve raised rates. The plaintiffs are asking the court to recognize this as a proper class action and seek damages, including punitive damages, and to declare other profits.
Osaic issued a statement denying the allegations and indicated it would defend the matter vigorously while pending. This action follows similar class action suits brought against industry firms, such as Betterment and Commonwealth, and regulatory inquiries by the Securities and Exchange Commission into large brokerages like Merrill Lynch, Wells Fargo, and Morgan Stanley.
Full Take
The narrative centers on a conflict between fiduciary duty and profit maximization within financial service structures. The core tension is whether mechanisms designed for customer benefit—like sweeping cash into interest-bearing accounts—are being subverted to generate proprietary profit through structuring interest rates rather than passing savings to the client. This suggests a systemic challenge where contractual obligations, implied duties, and market realities intersect in ways that favor institutional incentives over individual outcomes.
The pattern observed across these actions—Osaic, Betterment, Commonwealth—suggests an industry-wide vulnerability regarding the transparency and equitable distribution of realized financial gains. The persistence of litigation alongside regulatory scrutiny indicates a potential gap between regulatory oversight and the operational reality of complex financial product structures involving third-party intermediaries like clearing firms and banks.
The implication for human agency is profound: when fiduciary expectations are apparently superseded by proprietary profit structures, the perceived safety of financial relationships erodes. The focus shifts from simply calculating interest rates to scrutinizing the systemic design that allows fees and sweep mechanisms to create an asymmetric distribution of risk and reward. The lack of immediate enforcement action following regulatory inquiries, despite the nature of the claims, prompts a question about the efficacy of existing oversight mechanisms in tracking subtle, layered profit derivations within these systems.
Bridge questions: What specific legal or regulatory mechanisms exist that are designed to address conflicts where external entities (like clearing firms and banks) profit from customer cash flows? How can the standard for fiduciary duty be effectively applied when multiple layers of contractual obligations—between the firm, the clients, and third-party processors—are involved in determining net outcomes? What would need to change in regulatory emphasis to ensure that interest rate structures prioritize demonstrable client benefit over proprietary fee accumulation in automated sweeping processes?