SEC Charges Broker-Dealer/Investment Adviser with Overcharging for Mutual Funds in Retirement Accounts

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March 6, 2018

TO: ICI Members
Investment Company Directors
ICI Global Members
Bank, Trust and Retirement Advisory Committee
Broker/Dealer Advisory Committee
Transfer Agent Advisory Committee SUBJECTS: Compliance
Investment Advisers
Transfer Agency RE: SEC Charges Broker-Dealer/Investment Adviser with Overcharging for Mutual Funds in Retirement Accounts

 

The SEC recently instituted an administrative proceeding against a dually-registered broker-dealer and investment adviser for recommending and selling to retirement accounts more expensive mutual fund share classes.[1] In particular, in lieu of recommending and selling load-waived Class A shares with lower costs, the Respondent recommended and sold Class A shares with an up-front sales charge or Class B or C shares with a contingent deferred sales charge (CDSC) and higher ongoing fees and expenses. The SEC’s Order states that, in making these recommendations and sales, the Respondent failed to disclose to customers that it would receive greater compensation for such sales. As a result, such customers “did not have sufficient information to understand that [the Respondent] had a conflict of interest resulting from compensation it received for selling the more expensive share classes.” According to the Order, the Respondent’s customers paid $1,778,592.31 in excess compensation as a result of the Respondent’s action, which occurred from January 2010 through June 2015. The Order finds that the Respondent willfully violated the antifraud provisions of the Securities Act of 1933 (i.e., Section 17(a)(2) and 17(a)(3)). 

Based on these violations, the Respondent was censured, fined $230,000, and ordered to cease and desist from further violations of Sections 17(a)(2) and (3) of the Securities Act of 1933. The Order notes that the Respondent had already voluntarily agreed to reimburse impacted customers the $1,778,592.31 in excess fees along with $190,797.40 in interest. It also voluntarily converted, at no cost to customers, eligible accounts holding Class B and C shares to the load-waived Class A shares with lower expenses.

 

Tamara K. Salmon
Associate General Counsel
 

endnotes

[1] See In the Matter of Ameriprise Financial Services, Inc., SEC Release No. 33-10462 (Feb. 28, 2018), which is available at: https://www.sec.gov/litigation/admin/2018/33-10462.pdf