What You Need to Know
- Kestra advisors failed to disclose compensation received by their affiliated BD when investing client assets in certain mutual funds.
- The firm and several of its rivals have been hit with similar penalties over mutual funds in the past.
- Without admitting or denying the SEC’s findings, Kestra also agreed to cease-and-desist orders.
Two Kestra Financial divisions have been ordered by the Securities and Exchange Commission to pay a total of $10.3 million for failing to disclose compensation received by their affiliated broker-dealer when investing client assets in certain mutual funds.
In separate orders filed on Friday, the SEC alleged Kestra Advisory Services and Kestra Private Wealth Services, collectively referred to as the Kestra Advisers, selected mutual funds for clients which their affiliated BD received revenue sharing payments from the clearing broker, violating Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7.
Without admitting or denying the SEC’s findings, Kestra Advisory Services agreed to pay disgorgement of $7.2 million, prejudgment interest of $1.3 million and a civil penalty of $1.5 million, while Kestra Private Wealth Services, also without admitting or denying the findings, will pay disgorgement of $208,187, prejudgment interest of $31,382 and a civil penalty of $60,000.
The Kestra Advisers also agreed to cease-and-desist orders, to be censured, and to distribute the funds to harmed investors, according to the SEC.
“The Kestra companies cooperated with the SEC throughout the course of the investigation and are pleased to have reached a resolution of the matter,” Stephen Langlois, president of Kestra Financial, said on Monday.
This was not the first time that Kestra was ordered to compensate clients over mutual funds the firm received compensation for.
The SEC said in 2019 that 79 investment advisors, including Kestra Advisory Services agreed to return $125 million to clients as part of settled actions for directly or indirectly receiving 12b-1 fees for investments selected for clients without adequate disclosure, including disclosures that were inconsistent with the advisors’ actual practices.