79 investment advisers have settled charges brought by the US Securities and Exchange Commission (SEC) accusing them of not properly disclosing conflicts of interests involving the sale of costlier mutual fund share classes that caused them to earn more fees. The regulator’s action is related to its Share Class Section Disclosure Initiative. Announced by the SEC’s Division of Enforcement early last year, the initiative gives firms the chance to report disclosure failures that violate the Advisers Act, while offering them more “favorable settlement terms” in return.
Here is a partial list of some of the investment advisers involved in this case:
- AXA Advisors
- BOK Financial Securities
- Americas Investment
- Deutsche Bank Securities
- First National Capital Markets
- Raymond James Financial Services Advisors
- Investor Advisory Services
- Kepstra Advisory Services
- LPL Financial
- Coastal Investment Advisers
- Robert W. Baird & Co.
- Next Financial Group
- Oppenheimer & Co.
- First Citizens Investor Services
- Woodbury Financial Services
- Popular Securities
- Questar Asset Management
- Infinex Investments
- Stifel, Nicolaus & Co.
- RBC Capital Markets
- Santander Securities
- Janney Montgomery Scott
- Wells Fargo Advisors Financial Network
You can view a full list of all 79 investment advisers on the SEC’s release announcing the settlement.
These investment advisers purportedly were paid 12b-1 fees, which were ongoing, for certain mutual fund share classes that they chose for their clients, who were not given:
- “Adequate disclosure” that purchase of these specific share classes would cost them more.
- The firms stood to make more on these recommendations than on other choices.
- There were less expensive options available for the same funds.
The SEC said that these 12b-1 fees were regularly paid to the investment advisers for fulfilling the role of broker, to the firms’ own registered representatives, or to their brokerage firm affiliates.
It is the duty of investment advisers to make complete and accurate disclosures to current and prospective clients regarding “material conflicts of interest,” such as financial motives for recommending a particular investment. The SEC said that it is because the investment advisers stood to “benefit” from their clients paying the 12b-1 fees, rather than opting for the less expensive share classes of the same funds, that there was a conflict of interest.
The SEC said that the 79 investment advisers are settling the charges against them without denying or admitting to the findings. They also have consented to disgorge the fees that were “improperly disclosed” and will give the funds, along with prejudgment interest, back to the clients that were harmed. The advisers also agreed to assess whether their current clients would benefit from being moved to a less costly mutual fund share class. As part of the SEC’s initiative, the regulator has agreed not to order the investment advisers to pay any penalties.
At Shepherd Smith Edwards and Kantas, LLP (SSEK Law Firm), our mutual fund investor fraud lawyers work with investors in getting back the losses they sustained due to investment adviser fraud, broker fraud, broker-dealer misconduct, or some other type of securities fraud. SSEK Law Firm represents retail investors, institutional investors, and high net worth individual investors nationwide.
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