SEC $125mn Fund Class Initiative

On Mar. 11, SEC announced $125mn in redress on IA fee conflicts.

  • Charged 79 investment advisors, who directly or indirectly received 12b-1 fees
    on investments for clients, with disclosure that was inadequate or inconsistent.
  • Most of the advisory clients harmed by disclosure practice were retail investors.
  • Firms charged include BB&T, DB, Janney Montgomery, LPL Financial, TIAA-CREF, Oppenheimer Asset Management, Raymond James, RBC, Santander, Wells Fargo.
  • Follows SEC Feb. 2018 initiative on share class selection disclosure.
  • Initiative to incentivized advisers to self-report undisclosed conflicts of interest.

Alleged Violations

  • Advisers failed to adequately disclose conflicts of interest, for the sale of higher
    cost mutual fund share classes, where similar lower-cost classes were available.
  • Placed clients in fund share classes that charged 12b-1 fees, despite lower cost
    classes of same fund being available, did not disclose that higher cost selected.
  • 12b-1 fees were routinely paid to the investment advisers in capacity as broker,
    to their broker-dealer affiliate, or reps who were also registered representatives.
  • IAs created conflict of interests with their clients, since investment advisers had
    stood to benefit from clients paying them more fees on higher cost share classes.


  • The settling IAs will disgorge improperly disclosed fees and distribute to clients.
  • Advisers will review and correct relevant disclosure documents, and evaluate if
    clients should be moved to available lower-cost share class, and execute moves.
  • SEC has agreed not to impose other penalties against these investment advisers.