The Securities and Exchange Commission ordered a dual-registered brokerage firm and Registered Investment Advisor based in Burbank, California to pay over $1 million to settle charges pertaining to compliance and disclosure deficiencies related to mutual fund share class selection. In other words, the SEC charged the firm with exposing investors to excessive fees in mutual fund products.
According to the SEC's order, the firm, when recommending what mutual fund share class to invest in, did not disclose certain fees—known as 12b-1 fees—to the specific type of mutual fund recommended to its clients, nor did the firm disclose that it received a profit from the payment of such 12b-1 fees.
In turn, the SEC found that a conflict of interest arose when the firm invested advisory clients in a mutual fund share class that would generate 12b-1 fee revenue for the firm instead of recommending a different share class of the same fund that did not charge a 12b-1 fee.
As a result, in citing the firm for violating Section 206(2) of the federal Investment Adviser Act ("engage in any transaction, practice or course of business which operates as a fraud or deceit upon any client or prospective client"), SEC staff charged the Registered Investment Advisor with failing to disclose to clients and failing to address its undisclosed conflicts of interest, failing to adopt and implement written policies and procedures designed to achieve compliance with applicable laws.
The SEC also ordered disgorgement of $532,519.96 and ordered the firm to cease and desist from future violations.
In 2019, FINRA disciplined Voya Financial Advisors for failing to apply front-end sales charge discounts to eligible retirement plans for Class A mutual fund shares and in 2018, fined Cetera Advisor Networks (El Segundo, CA) $1.4 million after broker Mark Charles Koehler unsuitably and excessively traded Class A mutual funds in customer accounts, resulting in front-end load fees and other charges on the excessive transactions.
If you have invested with any broker or investment adviser who has failed to disclose a conflict of interest or unsuitably recommended you purchase a product, such as certain mutual fund shares, associated with large fees and other charges, resulting in losses or other harm to your investments or interests, please call an experienced FINRA arbitration attorney at The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.