The Securities and Exchange Commission is continuing to hold advisers feet to the fire over the sale of mutual funds that charge annual marketing fees to clients when less expensive choices are available.
Two firms, Triad Advisors Inc. and Securities America Advisors Inc., have recently come under the SEC's scrutiny and “acted inconsistently with their fiduciary duties” when choosing certain funds with the marketing fees, known as 12b-1 fees, for clients, according to a filing Monday afternoon with the SEC by their parent firm, Ladenburg Thalmann Financial Services Inc.
A 12b-1 fee is an annual marketing fee paid to advisers that is supposed to be earmarked for ongoing service and education.
“SEC examination staff reports provided to Triad and Securities America Advisors Inc. in May and August 2016, respectively, asserted that the firms had acted inconsistently with their fiduciary duties in recommending and selecting mutual fund share classes that paid 12b-1 fees where lower cost share classes also were available in those same funds,” according to Ladenburg Thalmann's
quarterly earnings report. “The staff also asserted that the firms' disclosures of potential conflicts of interest and compensation related to the mutual fund share classes that paid 12b-1 fees were insufficient.”
Securities America Advisors is the registered investment adviser arm of Securities America Inc., the independent broker-dealer.
A spokeswoman for Ladenburg Thalmann, Emily Deissler, said, "Ladenburg declines to comment" about the SEC examinations.
The issue of advisers selling mutual funds with 12b-1 marketing fees rather than lower-cost funds has been a recent focus of the commission and resulted in a handful of firms being fined and ordered to pay clients back money.
In March, the SEC
fined three independent broker-dealers formerly operating under the umbrella of the AIG Advisor Group $7.5 million and ordered them to pay restitution of $2 million to clients for persistent failures to use lower-cost mutual funds in clients' advisory accounts.
Triad and Securities America Advisors are studying the SEC staff evaluations, according to Ladenburg's earnings release. Some restitution to clients may be in the offing.
“The firms are reviewing the reports and the underlying circumstances, including, without limitation, the amounts of such payments and the contents of the firms' disclosures to clients," according to the release. The firms, the release added, "are determining appropriate remedial actions, which may include restitution to clients, and are in communication with the [SEC exam] staff as the firms seek to resolve the matter,” according to the release.
In its release, Ladenburg Thalmann gave no fixed indication whether it would in the future alter how it paid advisers who work with client retirement accounts.
According to Ms. Deissler, Ladenburg believes it is important for its advisers to have choice in how they can best serve their clients' needs, and will continue to permit commissioned based IRA accounts.
Numerous firms over the past month have declared whether they would continue or halt paying advisers' commissions in such accounts.
The moves have come as firms prepare for the Department of Labor's new fiduciary rule, which takes effect in April.
