An SEC initiative to have investment advisers self-report undisclosed conflicts of interest in the sale of higher-priced mutual funds has netted agreements with 79 financial firms to return $125 million to clients, the agency said Monday.
A substantial majority will go to retail investors, the SEC said in a statement.
The SEC enforcement division launched its Share Class Selection Disclosure Initiative in February 2018 "to address ongoing concerns that, despite the fiduciary duty imposed by the Investment Advisers Act, an (office of compliance inspections and examinations) risk alert, Form ADV reminders and numerous individual commission enforcement actions, investment advisers were not adequately disclosing or acting consistently with the disclosure, regarding conflicts of interest related to their mutual fund share class selection practices," the SEC said.
The settlements announced Monday alleged that the investment advisers failed to adequately disclose conflicts of interest related to the sale of higher-cost mutual fund share classes when a lower cost share class was available and that recurring 12b-1 fees taken from accounts were not adequately disclosed.
"The 12b-1 fees were routinely paid to the investment advisers in their capacity as brokers, to their broker-dealer affiliates or to their personnel who were also registered representatives, creating a conflict of interest with their clients, as the investment advisers stood to benefit from the clients' paying higher fees," the SEC statement said.
The 79 firms did not admit or deny the findings and agreed to be censured and to disgorge the improperly disclosed fees with prejudgment interest to affected advisory clients. They also pledged to correct all relevant disclosure documents concerning mutual fund share class selection and 12b-1 fees, and to evaluate whether existing clients should be moved to an available lower-cost share class and move clients, as necessary.
