Podcast Center
Video Center
Webcasts
Resource Center
Events
January 15, 2016 at 04:56 AM
The Securities and Exchange Commission ordered an investment advisor Thursday to appoint a dedicated chief compliance officer and pay a fine as part of a settled enforcement action alleging 12b-1 fee violations.
According to the SEC’s order instituting an administrative proceeding, since 2010, Everhart Financial Group, EFG, a registered investment advisor, principally invested its clients in the mutual funds offered by a single family of mutual funds via the Mutual Fund Complex, which offers two share classes to investment advisors with the only meaningful difference being that one share class charges 12b-1 fees and the other does not.
Despite significantly higher fees, some advisor reps at EFG “nearly always” invested non-retirement individual advisory accounts in shares that charged a 12b-1 fee, which was paid to EFG’s principal owners, who also were licensed registered broker-dealer reps, the SEC order states.
Receipt of 12b-1 fees “not only created a conflict of interest that was not adequately disclosed to EFG’s clients, but favoring 12b-1 funds over others was inconsistent with EFG’s duty to seek best execution for its clients,” the SEC said.
In addition, EFG had several compliance failures, including the lack of annual compliance reviews for several years, and also issued insufficient disclosures regarding the receipt of 12b-1 fees. The SEC said the firm also failed to file and deliver an accurate Form ADV.
The SEC has also required the advisory firm to retain an independent compliance consultant, notify all advisory clients of the enforcement order, and pay fines and disgorgement. EFG; its founder, Richard Scott Everhart; as well as miniority owner Matthew James Romeo were to pay total disgorgement of $201,985 and prejudgment interest of $23,422.
