SEC Charges Advisory Firm Serving Teachers With Billing, 12b-1 Fee Violations

The Securities and Exchange Commission has charged Educators Financial, a registered investment advisor that primarily markets its services to teachers, with violations related to billing practices and mutual fund share class selection for clients, including choosing funds that charged 12b-1 fees.

With respect to its billing practices, Educators Financial, according to the SEC order, failed to consistently aggregate the value of all accounts held by family members living in the same household when determining the fee rate, causing certain clients to pay a higher advisory fee than they should have; and failed to refund prepaid advisory fees after clients terminated the advisory relationship.

Educators Financial also purchased, recommended or held for advisory clients mutual fund share classes that charged 12b-1 fees instead of lower-cost share classes of the same funds that were available to the clients.

The firm, which as of Feb. 19, 2021, had more than $1.6 billion in regulatory assets under management, since at least November 2014, purchased, recommended or held for advisory clients mutual funds that charged 12b-1 fees.

“Educators Financial’s affiliated broker-dealer received 12b-1 fees from Educators Financial clients’ investments during this period, including fees that it would not have collected had Educators Financial’s clients been invested in the available lower-cost share classes,” the order states.

Prior to March 2018, Educators Financial did not disclose to clients in its brochure or otherwise that its affiliated broker-dealer collected 12b-1 fees, the SEC said.

The firm also charged clients an advisory fee pursuant to a fee schedule that set the fee using the “gross value of [the client’s] managed assets” and that reduced the advisory fee Educators Financial charged a client as that client’s assets under management increased, the SEC explained.