Broker-Dealer’s RIA Accused of Violating Fiduciary Duty
The US Securities and Exchange Commission (SEC) and Voya Financial Advisors have arrived at a $22.9M settlement, including $13.9M in restitution and interest to customers that were harmed. Voya Financial Advisors is an independent brokerage firm that is run as both a broker-dealer and a registered investment advisor (RIA).
As a brokerage firm, Voya Financial Advisors charges commissions. As an RIA, it charges fees. The regulator contends that conflicts at Voya’s registered investment advisor arm caused the firm to violate and breach its fiduciary obligation to advisory clients. Voya’s RIA oversees nearly $16B in assets for customers.
Conflicts Allegedly Involved Mutual funds, Alternative investments & Cash Sweep Accounts
The SEC found that from January 2013 to December 2018, Voya Financial’s investment adviser representatives allegedly:
- Recommended that clients purchase mutual funds that charged costlier 12b-1 marketing fees even though there were less expensive share classes from these same mutual funds available.
- Charged clients upfront commissions for illiquid, expensive alternative investment products when they could have sold them these products but waived the commissions.
- Recommended that clients invest in cash sweep money market funds that were performing badly although there were less expensive funds available that were performing better.
- Gave clients comparisons that were misleading when recommending they transfer their funds from money market funds to a bank cash sweep product. The SEC said this violated not just antifraud provisions, but also the Independent Advisers Act of 1940’s compliance rule.
In addition to the nearly $13.9M in restitution, Voya Financial will pay a $9M civil penalty.
Previous SEC and FINRA Sanctions Over Mutual Fund Sales
Last year, the Financial Industry Regulatory Authority (FINRA) censured the firm from January 1, 2009, through May 26, 2016, for selling charitable organizations and retirement plans more for mutual funds than both needed to pay. The SRO also noted that the firm failed to reasonably supervise the applying of sales charge waivers to mutual funds when warranted.
In 2017, Voya Financial Advisors reached another settlement with the SEC. The firm agreed to pay nearly $3.1M in fines and restitution for payments from a clearing broker related to mutual fund sales.
Shepherd Smith Edwards and Kantas (SSEK Law Firm at investorlawyers.com) represents retail investors, retirees, institutional investors, and high net worth individual investors in their broker fraud claims against financial firms and their registered representatives.