Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards

Regulation and Compliance > Federal Regulation > SEC

SEC Charges Cetera Unit With Defrauding Clients Over 12b-1 Fees

Your article was successfully shared with the contacts you provided.

The Securities and Exchange Commission has charged Cetera Advisors with breaching its fiduciary duty and defrauding investor clients by failing to disclose conflicts of interest related to over $10 million in undisclosed compensation.

According to the SEC’s complaint, from at least September 2012 through December 2016, Cetera invested and held clients in mutual fund share classes that charged recurring 12b-1 fees, even when the RIA — which is part of Cetera Financial Group — knew these clients were eligible to invest in lower-cost shares of the same funds without 12b-1 fees.

“Clients whom Cetera invested in the higher-cost, otherwise identical share classes paid additional compensation to Cetera for as long as they held these investments,” according to the SEC.

The news comes about six months after the regulatory group said nearly 80 investment advisory firms would return about $125 million to clients as part of settled actions tied to 12b-1 fees received without adequate disclosure; the advisory firms include Wells Fargo Advisors Financial Network, Wells Fargo Clearing, Next Financial, Deutsche Bank, Cambridge Investment Research, Kestra Advisory Services and LPL Financial.

Last month, the SEC charged Commonwealth Financial Network with breaching its fiduciary duty by failing to disclose that it received over $100 million in a revenue-sharing arrangement related to client investments in certain share classes of “no transaction fee” and “transaction fee” mutual funds.

According to the SEC, which filed its complaint against Cetera Advisors in the U.S. District Court for the District of Colorado, the RIA allegedly participated in a program offered by its clearing broker in which it shared revenues and service fees received from certain mutual funds. 

“As a result, Cetera had an incentive to favor these mutual funds in the program over other investments when advising clients,” the regulator said in a statement. 

“The SEC’s complaint further alleges that Cetera directed its clearing broker to mark up certain fees charged to Cetera’s advisory clients, which Cetera then received indirectly from these same clients,” it explained.

According to the SEC’s complaint, Cetera failed to adequately disclose to its advisory clients each of these practices and the conflicts of interest associated with them.

As a result, the regulatory group says it is seeking a permanent injunction, disgorgement of ill-gotten gains, interest and a penalty.

The SEC charged the RIA with violating Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7. 

Cetera declined to comment on the matter.


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.