SEC Fines Two Kestra RIAs for Undisclosed Revenue Sharing Conflicts
The Securities and Exchange Commission has settled charges against Kestra Advisory Services LLC and Kestra Private Wealth Services LLC.
The Securities and Exchange Commission has settled charges against Kestra Advisory Services LLC and Kestra Private Wealth Services LLC, two registered investment advisor subsidiaries of Kestra Financial Inc., for reportedly failing to disclose compensation received by their affiliated broker-dealer, Kestra Investment Services LLC.
The SEC claims that, from at least January 2014, the Kestra RIAs invested advisory client assets in certain mutual funds for which their affiliated broker-dealer received revenue sharing payments from its clearing broker.
According to the SEC, certain mutual funds that paid revenue sharing were more expensive than other lower-cost options available to clients, including instances when there were lower-cost share classes of the same mutual funds available that did not pay revenue sharing.
The orders also find that Kestra’s affiliated broker-dealer received compensation from fees charged on mutual fund trades and other services provided to advisory clients which were greater than what the clearing broker normally charged for those trades and services. For example, the affiliated broker had the clearing broker charge its customers an annual custody fee that was $20.00 more than what the clearing broker charged for custodial services.
According to the SEC, the Kestra RIAs breached their fiduciary duties to advisory clients by failing to provide full and fair disclosure regarding these two types of compensation received by their affiliated broker-dealer and the related conflicts of interest.
In addition, the orders find that the Kestra RIAs failed to adopt and implement policies and procedures designed to prevent violations of the federal securities laws regarding their mutual fund share class selection, fee markup practices, and best execution.
Without admitting or denying the SEC’s findings, Kestra Advisory Services will pay disgorgement of $7.2 million, prejudgment interest of $1.3 million, and a civil penalty of $1.5 million.
Kestra Private Wealth Services will pay disgorgement of $208,200, prejudgment interest of $31,400, and a civil penalty of $60,000.
The Kestra RIAs have agreed to cease-and-desist orders, to be censured, and to distribute the funds to harmed investors.
March 31, 2021, Kestra Advisory Services had $34.8 billion of assets under management, and Kestra Private Wealth Services had AUM of nearly $3 billion.
