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Regulation and Compliance > Federal Regulation > SEC

Cetera to Pay $9M Over 12b-1 Fee Violations

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A Colorado federal judge has ordered Cetera to pay close to $9 million to settle allegations brought by the Securities and Exchange Commission in 2019 against the firm over share class selection and revenue sharing infractions.

Cetera must pay close to $6 million in disgorgement, with Cetera Advisors and Cetera Advisor Network paying fines of $1 million each, as well as $990,961 in prejudgment interest, according to the order.

In 2019, the SEC 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.

The SEC filed its complaint against Cetera Advisors in the U.S. District Court for the District of Colorado. The agency said that 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.

In a statement shared with ThinkAdvisor Wednesday, Cetera said that the firm “revised its disclosures several years ago, and fully cooperated with the SEC throughout the course of this matter. We are pleased to have resolved this matter with the SEC and will continue to focus on providing exceptional service for Cetera financial professionals and their clients.”

More 12b-1 Fee Actions

The SEC has continued to bring cases against advisors for 12b-1 fee violations since ending its Share Class Selection Disclosure Initiative in April 2020. Since ending the share class initiative, the SEC has levied what industry officials call, in some cases, follow-on actions to firms that had been under investigation during the initiative.

Since January, the SEC  has levied at least 11 actions related to 12b-1 fee violations.

In July, the SEC slapped Private Advisor Group with a $5.8 million penalty for 12b-1 fee related infractions tied to its wrap fee program.

In September, a federal district court in Pennsylvania entered final judgments against Ambassador Advisors LLC, an RIA, and its principals for breaching fiduciary duties in connection with their mutual fund share class selection practices and receipt of 12b-1 fee revenue.

The judgments, issued on Sept. 7, order the Ambassador Advisor defendants to pay over $2 million in disgorgement, prejudgment interest and civil penalties.

Industry watchers are keeping a close eye on a likely rulemaking this year by the SEC that seeks to rein in 12b-1 fees. Amy Lynch, founder and president of FrontLine Compliance, sees the agency tackling 12b-1 fees via a rulemaking on its agenda dubbed fund fee disclosure and reform.


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