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Ameriprise Smacked With SEC Share-Class Violation Fine

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Ameriprise CEO Jim Cracchiolo Ameriprise CEO Jim Cracchiolo.

Ameriprise Financial Services has become the latest financial services firm to get ensnared in the Securities and Exchange Commission’s crackdown on share class infractions.

The Minnesota-based broker-dealer and investment advisor agreed Wednesday to settle charges that it recommended and sold higher-fee mutual fund shares to retail retirement account customers and failed to provide sales charge waivers.

According to the SEC’s order, Ameriprise disadvantaged certain retirement account customers by failing to ascertain their eligibility for less expensive mutual fund share classes.

Approximately 1,791 customer accounts paid more than $1.7 million in unnecessary up-front sales charges, contingent deferred sales charges, and higher ongoing fees and expenses as a result of Ameriprise’s practices.

According to the SEC order, Ameriprise recommended and sold these eligible customers Class A shares with an up-front sales charge or Class B or Class C shares with a back-end contingent deferred sales charge (a deferred sales charge the purchaser pays if the purchaser sells the shares during a specified time period following the purchase) and higher ongoing fees and expenses, when they were eligible to purchase load-waived Class A shares.

Without admitting or denying the findings, Ameriprise consented to a cease-and-desist order, a censure and a penalty of $230,000.

Ameriprise failed to disclose that it would receive greater compensation from the purchases and that the purchases would negatively impact the overall return on the customers’ investments, the SEC said.

“Ameriprise generated greater revenue for itself but lower returns for its retirement account customers by recommending higher-fee share classes,” said Anthony Kelly, co-chief of the SEC Enforcement Division’s Asset Management Unit.

“Ameriprise voluntarily paid full remediation to clients, with interest,” the firm said in a statement. “It’s important to note that this is a long-standing industry topic and numerous firms have settled with the SEC and FINRA on similar matters.”

The SEC continued:

“As evidenced by our recently announced Share Class Selection Disclosure Initiative, pursuing these types of actions remains a priority for the Division as we seek to get money back in the hands of harmed investors.”

Steven Peikin, co-director of the SEC’s Enforcement Division, said on Feb. 23 at the SEC Speaks event in Washington that investment advisors putting their clients into higher fee share classes when lower cost ones are available “is a widespread problem.”

Peikin, in referencing the division’s newly launched Share Class Selection Disclosure Initiative, said the “ultimate goal” of the program is to try to “return money” to as many investors

The SEC’s order instituting a settled administrative and cease-and-desist proceeding finds that Ameriprise violated Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933.

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