Northwest Advisors Hit With SEC Fine Over 12b-1, Wrap Fees

In its Form ADV dated March 26, 2018, before NWA wound down its advisor services, the firm reported that it had $362 million in regulatory assets under management.

During the relevant period, the order states, the advisory firm “was responsible for paying transaction fees arising from transactions by clients in its wrap fee program. NWA advised certain clients in its wrap fee program to purchase or hold mutual fund share classes that charged 12b-1 fees to the clients when lower-cost share classes of those same funds that would have resulted in NWA paying transaction fees were available to them.”

Although NWA did not receive the 12b-1 fees, the order states, “it benefited from selecting the higher-cost mutual fund share classes by avoiding incurring transaction fees that it otherwise would have had to pay.”

From March 2014 through March 2018, Northwest Advisors “made no disclosures in its wrap fee program brochure relating to 12b-1 fees or the conflict associated with its selection of mutual fund share classes,” the order states.

In its Form ADV dated March 26, 2018, while the advisory firm made its first disclosure regarding its mutual fund share class selection practices, that disclosure was inadequate, the SEC said.

Northwest Advisors “was obligated to disclose all material facts to its clients, including any conflicts of interest between itself and its clients that could affect the advisory relationship and how those conflicts could affect the advice NWA provided its clients,” the SEC said.