What You Need to Know
- Advisory clients paid excess fees on their investments.
- NWA advised certain clients in its wrap fee program to purchase or hold mutual fund share classes that charged 12b-1 fees.
- SEC ordered Northwest Advisors to pay disgorgement, prejudgment interest and a civil money penalty.
The Securities and Exchange Commission has fined Northwest Advisors in connection with its mutual fund share class selection practices and the excess fees paid by advisory clients in its wrap fee program, including 12b-1 fees.
According to the SEC’s order, from March 26, 2014 through Dec. 31, 2018, NWA purchased, recommended, or held for certain advisory clients mutual fund share classes that charged 12b-1 fees (which did not result in NWA paying transaction fees) instead of lower-cost share classes of the same funds that were available to the clients and did not charge 12b-1 fees (but did result in NWA paying transaction fees).
As a result, “the advisory clients paid excess fees on their investments and NWA avoided paying transaction fees for trades placed in those clients’ accounts,” the SEC states.
Northwest Advisors “did not adequately disclose this practice or the related conflict of interest in its Forms ADV or otherwise,” the SEC said.
NWA also breached its duty to seek best execution by causing certain advisory clients to purchase mutual fund share classes that charged 12b-1 fees when lower share classes of the same funds were available.
The SEC ordered Northwest Advisors to pay disgorgement and prejudgment interest, totaling $902,500, as well as a $245,000 civil money penalty.
NWA was registered with the commission as an investment advisor from November 2013 through Dec. 31, 2018, and provided advisory services to retail clients through wrap fee arrangements.