79 firms to Pay SEC $125 Million Restitution for Restitution, 12b-1 fees Financial Incentives
The U.S. Securities and Exchange Commission (SEC) has announced that clients from 79 investment firms who were sold high-fee mutual funds will get their money back.
The restitution, totaling $125 million, will go back to retail investors who were not informed that the investment firms received higher fees for selling certain mutual funds.
SEC Cracks Down on Failure to Disclose Fees
As part of an initiative to crack down on firms that failed to disclose fees to clients, the SEC has offered incentives to advisors to turn themselves in. As part of the program, the SEC has agreed not to impose penalties against the investment advisors who come forward but to enforce that the money be returned to investors.
Upon investigation, the SEC found that advisors failed to disclose to clients that they received 12b-1 fees, or revenue-sharing payments, for the funds they recommended when a less expensive fund was available. The payments to advisors were made in several forms, according to filings “in their capacity as brokers, to their broker-dealer affiliates, or to their personnel who were also registered representatives.”
The payments are financial incentives, considered to be a conflict of interest. Under the Investment Advisers Act, which requires advisers to act as fiduciaries, failure to disclose the payments are a violation.
Investment Firms Pay Restitution
Without admitting or denying fault, 79 firms settled with the SEC. Among those in the agreement: Wells Fargo Advisors Financial Network, LPL Financial, Raymond James Financial Services, Cambridge Investment Research Advisors Inc., D.A. Davidson, Oppenheimer & Co. Inc., Provise Management Group, RBC Capital Markets, and Robert W. Baird & Co. Inc.
Regulators Encouraging Advisors to Come Clean
In a statement, the SEC said that its initiative was successful and has increased investor awareness about asking advisors to disclose fees and other conflicts of interest.
In a similar move, the Financial Industry Regulatory Authority Inc. (FINRA) is offering incentives for brokers to turn themselves in for recommending unsuitable high-fee 529 college savings plans. No word yet on the success of that campaign, as the deadline is April 30.
Have You or Someone You know Lost Money as a Result of Stockbroker Negligence?
Brokerage firms are obligated to supervise their brokers. If they fail to do so and a broker’s negligence causes you financial harm, you may have a claim to recover your investment losses. If you or someone you know lost money as a result of stockbroker misconduct, contact an experienced investment fraud attorney at Dimond Kaplan & Rothstein, P.A. today.
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