The Securities and Exchange Commission is continuing to penalize broker-dealers and related registered investment advisers over a lack of full disclosure about conflicts related to fund sales. Last week it reached a settlement with MML Investors Services for $2.1 million and on Monday it settled with Rothschild Investment Corp. for $2.47 million.
Neither firm admitted to or denied the findings of the SEC, which has been cracking down on disclosures surrounding payments by funds to broker-dealers and RIAs. The SEC launched the initiative in February 2018 to target advisory firms that recommended high-fee mutual funds without telling clients that less expensive share classes were available in the same funds.
In an order from Friday, the SEC found that since March 2015, MML Investors Services and a related firm had invested clients in certain share classes of mutual funds that resulted in the firms receiving revenue-sharing payments tied to agreements with their clearing broker. In spite of these financial arrangements, the two firms "provided no disclosure or inadequate disclosure of the conflicts of interest arising from this compensation," according to the SEC's administrative order.
And in an order Monday, the SEC found that since January 2014, Rothschild Investment Corp. had not provided full and fair disclosure of fees and revenue-sharing payments and the related conflicts of interest, including 12b-1 fees and revenue sharing from a clearing broker.
A 12b-1 fee is an annual marketing fee paid to advisers that is supposed to be earmarked for ongoing service and education. Firms historically have run into trouble with regulators when they sell more expensive funds, including those with 12b-1 fees, over cheaper alternatives.
A spokesperson for Rothschild did not return a call Tuesday to comment. The firm agreed to pay disgorgement of $1.9 million, interest of almost $200,000 and a penalty of $400,000. The firm has $1.6 billion in assets under management, according to the SEC.
"MML Investors Services takes this matter very seriously and cooperated fully with the SEC," a spokesperson with the firm wrote in an email. "Similar to other industry participants, we have reimbursed impacted accounts and are pleased to have resolved this matter."
MML agreed to pay disgorgement of $1.15 million, interest of $260,000 and a penalty of $700,000.
MML, a subsidiary of MassMutual, has $49 billion in AUM.
Most firms place a limit on advisors’ sales of alternative investments to clients in the neighborhood of 10% a customer’s net worth.
Those jumping ship include women advisors and breakaways.
Firms in New York and Arizona are the latest additions to the mega-RIA.
The agent, Todd Bernstein, 67, has been charged with four counts of insurance fraud linked to allegedly switching clients from one set of annuities to another.
“While harm certainly occurred, it was not the cataclysmic harm that can justify a nearly half billion-dollar award to the State,” Justice Peter Moulton wrote, while Trump will face limits in his ability to do business in New York.
Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.
Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.
