SEC Settles Mutual Fund Fee Charges With High-Ranked RIA

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Mesirow Financial Investment Management, a large registered investment advisor based in Chicago, has agreed to pay more than $750,000 to settle allegations that it overcharged clients by placing them in certain high-fee shares of mutual funds.

In addition to the monetary penalties Mesirow has agreed to pay, the firm has also committed to notify affected clients of the settlement.

Joshua Roberts/Bloomberg

The Securities and Exchange Commission alleged that from early 2015 through May 2019 Mesirow’s affiliated broker received a portion of the fees clients paid to its clearing broker for certain share classes of mutual funds.

“Lower-cost share classes of those same funds were also generally available … for which the clearing broker would have paid no or lower revenue sharing,” the SEC said in its order implementing cease and desist proceedings against Mesirow.

The company did not immediately respond to requests for comment. Mesirow, which ranked No. 40 on the Barron’s 2021 list of top RIA firms, reported more than $43 billion in client assets on its most recent Form ADV regulatory filing.

The settlement announced this week is the latest in a long string of enforcement activity involving mutual fund share classes and undisclosed conflicts of interest. The SEC and industry regulator Finra have both been looking to find and punish firms that have been boosting revenue and advisor compensation by steering clients toward high-fee share classes.

The SEC had found the issue to be so pervasive that it previously set up a novel self-reporting initiative, inviting firms to come forward and acknowledge that they had been overcharging clients for mutual fund share classes. Firms that self-reported were promised lenient enforcement terms. But that initiative has ended, and the commission is making no similar offers for the firms that didn’t participate in the self-reporting program.

In addition to the monetary penalties Mesirow has agreed to pay, the firm has also committed to notify affected clients of the settlement.

The SEC concluded that Mesirow breached its fiduciary duty by failing to disclose to clients the compensation its affiliated broker, Mesirow Financial, received from the clearing brokers. Further, the commission alleges that Mesirow violated its duty to seek best execution for clients by selling them pricey fund shares “when share classes of the same funds were available to the clients that presented a more favorable value.”

The SEC also cited the firm for failing to maintain written policies and procedures to ensure clients are placed in the most appropriate share classes. The commission affirmed that Mesirow has since updated its compliance protocols to address the conduct alleged in the order.

Mesirow resolved the case without admitting or denying the charges, but accepted a censure as part of the settlement.

Write to advisor.editors@barrons.com

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