SEC Fines RIA $2M Over 12b-1 Fees, Share Class Selection

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The Securities and Exchange Commission says it has censured and fined another registered investment advisor firm over alleged violations in mutual fund share selection.

From January 2014 through March 2021, Jonathan Roberts Advisory Group, doing-business-as J.W. Cole Advisors, allegedly received three types of fees as a result of an expense-sharing arrangement between the firm and an unaffiliated broker-dealer, J.W. Cole Financial, according to administrative proceeding document the regulator published last week.

Those fees included what JWCF allegedly received when JWCA purchased or recommended share classes that paid 12b-1 fees, instead of alternative share classes that were available for the same funds and didn’t charge the 12b-1 fee; fees that JWCF received from its unaffiliated clearing broker when JWCA’s clients were invested in share classes of mutual funds for which the clearing broker paid revenue sharing; and fees JWCF received from the clearing broker because of JWCA’s practice of sweeping its advisory clients’ cash into certain money market mutual funds when lower-cost share classes for the same funds were available, the SEC says.

JWCA also allegedly failed to disclose conflicts of interest related to 12b-1 fees on its Form ADVs, according to the regulator.

JWCA agreed to a cease-and-desist and a censure and to pay around $989,000 in disgorgement, plus prejudgment interest of around $118,000, as well as a civil penalty of $85,000, all without admitting or denying the findings, the SEC says.

The SEC has been doggedly pursuing alleged violations of related to mutual fund share class selection. Since the regulator concluded its Share Class Selection Disclosure initiative — which offered firms that self-reported violations some leniency and resulted in close to $140 million being returned to investors — it’s reached settlements totaling tens of millions of dollars with several firms.

Some of the bigger settlements since the initiative concluded in April 2020 include the one the SEC reached with Prudential subsidiary Pruco Securities, for close to $18.3 million. The regulator also settled for $18.4 million with U.S. Bancorp Investments a for $22.9 million with Voya Financial Advisors, among others.

Last week, meanwhile, the SEC also settled with Northwest Advisors for around $900,000 over alleged violations in mutual fund share class selection and 12b-1 fees in its wrap fee program.

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