Large BD/IA Pays $2.2 Million for Recommending Wrong Mutual Fund Share Class
A large BD/IA agreed to pay $2.2 Million in remediation, interest and penalties for failing to recommend the lowest mutual fund share class available to retirement plan customers. Instead of recommending load-waived “A” shares, the respondent recommended other higher-cost share classes that resulted in compensation paid to the BD/IA. The SEC faults the firm for failing to have adequate systems and controls in place to ensure that retirement clients benefitted from available discounts. The SEC also asserts that the BD/IA omitted necessary disclosures about revenue sharing and the impact on overall investment returns. An SEC Enforcement official warned that “these types of actions remains a priority for the Division” as evidenced by its recently-announced Share Class Selection Disclosure Initiative.
OUR TAKE: Firms must implement a system to ensure that eligible clients get the waivers to which they are entitled. Compliance can’t rely on reps self-policing, especially when they receive higher compensation on certain share classes.