Two BMO advisors agreed to pay more than $37 million to settle charges regarding their failure to tell clients about certain aspects of how the advisors selected investments in their retail investment advisory program, the Managed Asset Allocation Program (MAAP), which included the selection of more expensive investments from which BMO advisors profited.
According to the SEC’s order, when selecting investments for clients, BMO Harris Financial Advisors, Inc. (BMO Harris) and BMO Asset Management Corp. preferred mutual funds managed by BMO Asset Management and invested approximately 50% of MAAP client assets in those proprietary funds.
The practice resulted in payment of additional management fees to BMO Asset Management.
However, the SEC’s order found that neither BMO advisor disclosed this practice or the associated conflict of interest to clients.
Moreover, according to the SEC’s order, when considering mutual funds for MAAP, BMO Asset Management “evaluated the lower-cost institutional share class for both proprietary and non-proprietary funds, but the higher-cost, non-institutional share class for proprietary mutual funds always was selected for MAAP.”
The SEC also found that BMO Harris failed to disclose its conflicts of interest arising from investing MAAP client assets in higher-cost share classes of certain mutual funds, including proprietary funds, when lower-cost share classes were available.