The Securities and Exchange Commission (SEC) recently fined Royal Alliance Securities Inc., SagePoint Financial Inc., and FSC Securities Corp, all three independent broker-dealers operating under the umbrella of the AIG Advisor Group, to the tune of $7.5 million. The SEC also ordered the broker-dealers to pay restitution of $2 million to clients for persistent failures to use lower-cost mutual funds in clients’ advisory accounts. All three broker-dealers were accused of “breaches of fiduciary duty and multiple compliance failures, and from at least 2012 until 2014, the three broker-dealers invested advisory clients in mutual fund share classes with 12b-1 fees instead of lower-fee share classes of the same funds that were available without 12b-1 fees.” The fees are annual marketing fees paid to advisers that are supposed to be earmarked for the adviser’s ongoing service and education. According to an order, approximately $2 million in lower-fee share classes should have been available to investors. The three firms also allegedly failed to disclose the conflict of interest due to a financial incentive to place clients with non-retirement accounts in higher-fee mutual fund share classes. The SEC also stated that during the relevant period, the three firms failed to devote sufficient resources to their compliance infrastructure to support their investment advisory business, and, as a result, several compliance failures at the advisor group firms in their fee-based advisory businesses contributed to the violations.
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