SEC Charges Commonwealth with Failing to Disclose Conflicts on Revenue Sharing
The Securities and Exchange Commission has charged Commonwealth Financial Network, a registered investment adviser and broker-dealer that manages approximately $85 billion in client assets, with failing to disclose conflicts of interest related to revenue sharing it received for certain mutual fund investments.
The Securities and Exchange Commission has charged Commonwealth Financial Network, a registered investment adviser and broker-dealer that manages approximately $85 billion in client assets, with failing to disclose conflicts of interest related to revenue sharing it received for certain mutual fund investments.
According to the SEC’s complaint, since at least 2007, Commonwealth had a revenue sharing agreement with clearing broker and Fidelity Investments affiliate, National Financial Services LLC (NFS), which it required most of its clients use for trades in their accounts.
Under that agreement, Commonwealth would receive a portion of the money that certain mutual fund companies paid to the broker to be able to sell their funds, if Commonwealth clients invested in certain share classes.
The SEC’s complaint alleges that Commonwealth failed to tell its clients that there were mutual fund share class investments that were less expensive to clients than some shares that financially benefited Commonwealth.
As a result of these omissions, the regulators claim that Commonwealth’s advisory clients invested without a full understanding of the firm’s compensation motives and incentives.
Between July 2014 and December 2018, Commonwealth received more than $100 million in revenue sharing from NFS related to certain client investments in “no transaction fee” and “transaction fee” mutual funds.
In a statement, a Commonwealth representative said, “While the enforcement action proposed by the Securities and Exchange Commission is a pending legal matter, Commonwealth Financial Network vehemently denies the allegations and believes they are categorically without merit. We are confident we have operated both appropriately and justly and will vigorously defend our actions in this matter.”
The SEC’s complaint alleges that Commonwealth breached its fiduciary duty to its clients by failing to disclose these conflicts of interest and violated certain antifraud and compliance provisions of the Investment Advisers Act of 1940.
