Investment Adviser Settles Best Execution and Mutual Fund Share Class Selection Violations

A registered investment adviser settled SEC charges for compliance failures related to (i) best execution, (ii) mutual fund share class selection practices, and (iii) billing practices.

In its Order, the SEC found that the investment adviser failed to disclose all material facts regarding a conflict of interest involving 12b-1 fees. The Order also stated that the investment adviser breached its duty to seek best execution by causing certain advisory clients to invest in fund share classes that charged 12b-1 fees, despite the availability of share classes of the same funds presenting a more favorable value for those clients.

In addition, the SEC determined that the investment adviser failed to adopt and implement written compliance policies and procedures in connection with its billing practices and mutual fund share class selection. The agency found that the investment adviser (i) failed to consistently aggregate the value of all accounts held by family members living in the same household, thereby resulting in certain clients paying higher advisory fees and (ii) failed to refund pre-paid advisory fees after clients terminated the advisory relationship.

As a result, the SEC determined that the investment adviser violated Sections 206(2) and 206(4) of the Investment Adviser Act (“Prohibited Transactions by Investment Advisers”), as well as Rule 206(4)-7 ("Compliance Procedures and Practices"), thereunder.

To settle the charges, the investment adviser agreed to (i) various undertakings, (ii) cease and desist from further violations, (ii) a censure, and (iii) a disgorgement, prejudgment interest, and civil penalty totaling $1,107,490.55.