Investors to Get $125 Mln from Firms Fessing Up to Fund Sale Violations
The Securities and Exchange Commission’s Share Class Selection Disclosure Initiative that ran from February to mid-June 2018 will return more than $125 million to clients, with a substantial majority of the funds going to retail investors, the regulator said on Monday.
The program offered immunity from monetary fines to investment advisor firms that admitted that they, their broker-dealer affiliates or their brokers did not disclose to customers—or misleadingly disclosed—conflicts of interest associated with selling share classes that paid them 12b-1 fees when less expensive share classes were available. Firms collect the fees for as long as investors hold the fund shares.
Seventy-nine firms, ranging from Ameritas Investment Corp. and AXA Advisors LLC to Wells Fargo and Woodbury Financial Services, reached settlements (see list at bottom) that require them to disgorge the improperly disclosed fees, distribute them with prejudgment interest to affected clients and to accept censures. The violations they confessed to occurred between 2014 and mid-2018.
Each firm also agreed to review and correct relevant disclosure documents concerning mutual fund share class selection and evaluate whether existing clients should be moved to an available lower-cost share class.
“I am pleased that so many investment advisers chose to participate in this initiative and, more importantly, that their clients will be reimbursed,” SEC Chairman Jay Clayton said in a prepared statement.
Clayton is a Trump Administration appointee who is shepherding a Regulation Best Interest customer-care standard for brokers that some consumer advocates have criticized as too lax but that is expected to be adopted by the Commission this year. He introduced the disclosure initiative last year as an efficiency measure.
The SEC said it and the Financial Industry Regulatory Authority have been focusing on hidden mutual fund costs to investors that benefit advisory firms and brokers since at least 2013. The regulators often imposed monetary penalties on those found to have violated disclosure and sales-supervision rules, in addition to requiring reimbursement and remediation requirements.
“The [self-disclosure] initiative leveraged the expertise of the agency in crafting an efficient approach to remedy a pervasive problem,” Steven Peikin, co-director of the SEC’s Division of Enforcement, said in a prepared statement.
Finra in January announced a similar self-disclosure initiative related to sale of “529” college savings-plan programs.
Oppenheimer & Co. two weeks ago disclosed that it had proposed a $3.5 million settlement with the SEC on the 12b-1 fee share-disclosure issue.
The 79 firms who agreed to the mutual fund settlements are:
- Ameritas Investment Corp.
- AXA Advisors LLC
- BB&T Securities LLC
- Beacon Investment Management LLC
- Benchmark Capital Advisors LLC
- Benjamin F. Edwards & Co. Inc.
- Blyth & Associates Inc.
- BOK Financial Securities Inc.
- Calton & Associates Inc.
- Cambridge Investment Research Advisors Inc.
- Cantella & Co. Inc.
- Client One Securities LLC
- Coastal Investment Advisors Inc.
- Comerica Securities Inc.
- Commonwealth Equity Services LLC
- CUSO Financial Services LP
- D.A. Davidson & Co.
- Deutsche Bank Securities Inc.
- EFG Asset Management (Americas) Corp.
- Financial Management Strategies Inc.
- First Citizens Asset Management Inc.
- First Citizens Investor Services Inc.
- First Kentucky Securities Corporation
- First National Capital Markets Inc.
- First Republic Investment Management Inc.
- Hazlett, Burt & Watson Inc.
- Hefren-Tillotson Inc.
- Huntington Investment Company, The
- Infinex Investments Inc.
- Investacorp Advisory Services Inc.
- Investmark Advisory Group LLC
- Investment Research Corp.
- J.J.B. Hilliard, W.L. Lyons LLC
- Janney Montgomery Scott LLC
- Kestra Advisory Services LLC
- Kestra Private Wealth Services LLC
- Kovack Advisors Inc.
- L.M. Kohn & Company
- LaSalle St. Investment Advisors LLC
- Lockwood Advisors Inc.
- LPL Financial LLC
- M Holdings Securities Inc.
- MIAI Inc.
- National Asset Management Inc.
- NBC Securities Inc.
- Next Financial Group Inc.
- Northeast Asset Management LLC
- Oppenheimer & Co. Inc.
- Oppenheimer Asset Management Inc.
- Park Avenue Securities LLC
- PlanMember Securities Corporation
- Popular Securities LLC
- Principal Securities Inc.
- Private Portfolio Inc.
- ProEquities Inc.
- Provise Management Group LLC
- Questar Asset Management Inc.
- Raymond James Financial Services Advisors Inc.
- Raymond Lawrence Lent (d/b/a The Putney Financial Group, Registered Investment Advisors)
- RBC Capital Markets LLC
- Robert W. Baird & Co. Incorporated
- Ryan Financial Advisors Inc.
- SA Stone Investment Advisors Inc.
- Santander Securities LLC
- Select Money Management Inc.
- Silversage Advisors
- Sorrento Pacific Financial LLC
- Spire Wealth Management LLC
- SSN Advisory Inc.
- Stephens Inc.
- Stifel, Nicolaus & Company Incorporated
- Summit Financial Group Inc.
- Syndicated Capital Inc.
- TIAA-CREF Individual & Institutional Services LLC
- Transamerica Financial Advisors Inc.
- Trustcore Financial Services LLC
- Wells Fargo Clearing Services LLC
- Wells Fargo Advisors Financial Network LLC
- Woodbury Financial Services Inc.