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SEC Slams PNC, Securities America, Geneos With $15M Fine Over Share Class Violations

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SEC headquarters in Washington. (Photo: National Law Journal)

The Securities and Exchange Commission said Friday that three investment advisory firms PNC Investments, Securities America and Geneos Wealth Management have agreed to collectively pay nearly $15 million for failing to disclose conflicts and putting clients into higher-cost mutual fund shares. More than $12 million will go to harmed clients.

The orders against the three advisory firms states they breached their fiduciary duties to clients and generated “millions of dollars of improper fees in the process.”

All three “failed to disclose conflicts of interest and violated their duty to seek best execution by investing advisory clients in higher-cost mutual fund shares when lower-cost shares of the same funds were available.”

“These disclosure failures cause real harm to clients,” said C. Dabney O’Riordan, co-chief of the SEC’s Asset Management Unit. “We strongly encourage eligible firms to participate in the recently announced Share Class Selection Disclosure Initiative as part of an effort to stop these violations and return money to harmed investors as quickly as possible.”

The firms invested advisory clients in mutual fund share classes that charged 12b-1 fees instead of less expensive share classes of the same funds that were available without 12b-1 fees,  the SEC states.

Steven Peikin, co-director of the Securities and Exchange Commission’s Enforcement Division, said during the SEC Speaks conference in Washington in late February that “investment advisors putting their clients into higher fee share classes when lower cost ones are available “is a widespread problem.”

Ameriprise Financial Services agreed in late February 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.

PNC Investments must pay a $900,000 fine, as well as about $6.4 million in disgorgement and pre-judgement interest.

 “The SEC has indicated the disclosure issues described in its order are widespread across the industry and has launched a share-class selection disclosure initiative to encourage self-reporting by other firms that used disclosure language similar to PNCI’s,” the company explained in a statement.  “PNCI cooperated fully with the SEC and kept PNC’s board apprised of developments in the matter.  We are pleased to put this matter behind us.”

Geneos has been fined $250,000 and required to pay about $1.5 million in disgorgement and pre-judgement interest.

For its part, Geneos stated: “As made clear in the Commission’s Share Class Disclosure Initiative issued on February 12, 2018, many investment advisers have not met the Commission’s standards in making adequate disclosures of potential conflicts of interest regarding the variety of fees that may be paid by different mutual funds, or by different share classes offered by a single fund. We are glad to have this matter behind us, and we will continue to focus on helping our many clients meet their financial goals, as we have been doing since 2003.”

Securities America will pay a $775,000 fine, along with disgorgement and interest of about $5.05 million.

In a statement from a spokesperson, Securities America said: “Securities America Advisors, Inc. strives to adhere to the highest standards ….  In 2017, we revised our disclosures, instituted new policies regarding fund share classes and transitioned existing holdings in client advisory accounts to the lowest-cost mutual fund share class available.”

— Check out Advisors Should Act Now on the Rule 12b-1 Initiative on ThinkAdvisor.


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