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SEC Orders 17 Advisory Firms to Pay $10 Million to Investors over Mutual Fund Sales

The Securities and Exchange Commission has settled charges against an additional 17 investment advisers for inadequate disclosures over their mutual fund share class selection practices.

The Securities and Exchange Commission has settled charges against an additional 17 investment advisers for inadequate disclosures over their mutual fund share class selection practices. The firms will return approximately $10 million total to investors.

The actions stem from the SEC’s share class selection disclosure initiative, which it launched in February 2018 in an effort to identify and correct what it deems as ongoing harm in the sale of mutual fund shares by investment advisers.

The SEC claims that the advisers placed their clients in mutual fund share classes that charged 12b-1 fees – which are recurring fees deducted from the fund’s assets – when lower-cost share classes of the same fund were available to their clients, without adequately disclosing that the higher cost share class would be selected.

As part of the initiative, eligible firms that self-reported by the deadline could avoid paying a civil penalty.

The 16 self-reporting firms include Bill Few Associates Inc., Cargile Investment Management Inc., Equity Services Inc., Essex Financial Services Inc., Folger Nolan Fleming Douglas Capital Management Inc., Henley & Company Wealth Management, Hilltop Securities Inc., Hilltop Securities Independent Network Inc., IC Advisory Services Inc., Independent Financial Group, Investment Partners Ltd., IPG Investment Advisors, Michigan Advisors Inc., Saxony Capital Management, and Wedbush Securities Inc.

One adviser, Mid Atlantic Financial Management, did not self-report and was ordered to pay a $300,000 civil penalty and more than $1 million in disgorgement and prejudgment interest.

Earlier this year, the SEC ordered 79 advisers that participated in the initiative to pay more than $125 million in disgorgement and prejudgment interest to investors.

“Today’s actions reaffirm the benefits to advisers and their clients for self-reporting as part of the initiative,” said C. Dabney O’Riordan, Co-Chief of the Asset Management Unit. “They also demonstrate the Commission’s commitment to holding advisers accountable for selecting more expensive investments that eat away at their clients’ investment returns without proper disclosure.”

There were 79 firms that previously settled with the SEC include AXA Advisors LLC, Deutsche Bank Securities Inc., Investacorp Advisory Services Inc., Kestra Advisory Services LLC, Kestra Private Wealth Services LLC, LPL Financial LLC, Next Financial Group Inc., Oppenheimer & Co. Inc., Raymond James Financial Services Advisors, Robert W. Baird & Co. Incorporated, Stifel, Nicolaus & Company, TIAA-CREF Individual & Institutional Services LLC, Transamerica Financial Advisors Inc., Wells Fargo Advisors Financial Network LLC, and Woodbury Financial Services Inc., among others.

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