Michigan RIA to pay $2.5 million for mutual fund conflicts

Sigma Planning failed to disclose conflicts related to 12b-1 fees: SEC

Sep 20, 2019 @ 4:09 pm

By Bruce Kelly

Sigma Planning Corp., the RIA arm of a Michigan independent broker-dealer, has reached a settlement with the Securities and Exchange Commission in which the firm will pay $2.5 million in fines and restitution to clients after it faced charges that it chose mutual funds for clients that gave the firm with financial benefits without disclosing its conflicts to clients.

According to the SEC, Sigma failed to fully disclose its conflicts relating to select mutual fund share classes for which Sigma was paid a portion of the annual marketing 12b-1 fees when lower-cost share classes for the same mutual fund were available to its clients.

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Sigma also failed to disclose to clients that by selecting these 12b-1 fee share classes, the firm avoided paying its clearing broker an asset-based fee that it would have otherwise had to pay, according to the SEC's order.

And the firm failed to disclose the conflicts associated with its broker-dealer affiliates receiving revenue-sharing payments in connection with certain alternative investment products that Sigma purchased for its advisory clients, according to the SEC.

The firm neither admitted to nor denied the SEC's findings in the matter. Sigma will pay disgorgement of $1.9 million, interest of $226,000 and a civil penalty of $400,000.

The firm's chief compliance officer, John McClellan, declined to comment.

Sigma Planning is the sister firm of Sigma Financial Corp. Based in Ann Arbor, Mich., the broker-dealer had 668 reps and advisers with $13.9 billion in assets at the end of last year, according to InvestmentNews data.

More than 18 months ago, the SEC began a crackdown on inadequate mutual fund payment disclosures.

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