More On Legal & Compliancefrom The Advisor's Professional Library
- Trading Practices and Errors When SEC-registered investment advisors conduct annual audits of firm policies and procedures, they should pay close attention to trading practices. Though usually not required to, state-registered advisors should look at their trading practices and revise policies that do not fully protect clients.
- Risk-Based Oversight of Investment Advisors Even if the SEC had a larger budget and more resources, it is doubtful that the Commission would have the resources to regularly examine all RIAs. Therefore, the SEC is likely to continue relying on risk-based oversight to fulfill its mission of protecting investors.
The Department of Labor’s Employee Benefits Security Administration (EBSA) announced Monday that it had fined Morgan Keegan, the troubled broker-dealer recently acquired by Raymond James, for violating its fiduciary obligations in recommending certain hedge funds of funds as investments to pension plans in return for revenue sharing payments.
According to EBSA, Morgan Keegan and Co. Inc. has agreed to pay $633,715.46 to 10 pension plans covered by the Employee Retirement Income Security Act (ERISA) following an investigation by EBSA that found the full-service brokerage company violated federal law when it recommended certain hedge funds of funds as investments to its ERISA-covered employee benefit plan clients.
These recommendations resulted in the hedge funds paying Morgan Keegan revenue-sharing and other fees, EBSA says.
Phyllis Borzi, assistant secretary of labor at EBSA, said in announcing the fine that “The law is very clear: If you accept a fee to give investment advice to a retirement plan, you are a fiduciary and must therefore act solely in the best interests of the participants in that plan.” Third-party payments, she said, “should never be the motivating factor behind which investments brokers and advisors steer retirement clients into.”
Under the terms of the settlement, EBSA says that Morgan Keegan has agreed to disclose to its ERISA plans clients whether the company will act as a fiduciary to those plans.
“If the company is acting as a fiduciary, it will specify the services that it is providing as a fiduciary,” EBSA says. “Morgan Keegan also will provide to its ERISA plans clients a description of all compensation and fees received, in any form, from any source, involving any investment or transaction related to them. The company either will not collect commissions or, if it does collect them, refund to its ERISA plans clients 100% of the amount collected from third parties.”
The alleged violations occurred between April 2001 and November 2008, EBSA says. Raymond James Financial announced April 2 that it had closed on the acquisition of Memphis-based Morgan Keegan from Regions Financial, paying $1.2 billion in cash.
A Raymond James spokesperson reached by AdvisorOne declined to comment on the fine.