Published on May 5th, 2022 |

Brief Introduction | SEC Fines RIA $760k+ Over Wrap Fees

Recently, the SEC fined an RIA Firm over $760,000+ over Wrap Fees.

The RIA and its advisors allegedly benefitted by avoiding paying any transaction fees when recommending share classes.

Brief Synopsis Of The SEC Fine

It was found that from 2014-2019, a Registered Investment Adviser (“RIA”) invested certain clients’ assets in higher-cost mutual fund share classes than were otherwise available while failing to disclose the conflicts of interest associated with those investment recommendations.

Among other services, the RIA offered a wrap program option to its advisory clients. The RIA was responsible for paying client trading costs under its arrangement with clients in wrap accounts. This included transaction fees on mutual fund investments as part of the overall management fee clients paid by the RIA.

The RIA avoided incurring transaction fees for some client transactions by recommending mutual fund share classes from a no transaction-fee program that charged fees pursuant to Rule 12b-1, often instead of lower-cost share classes of the same fund that were available to clients for a transaction fee.

By investing clients in no-transaction fee share classes, the RIA avoided paying transaction fees on client trades of these mutual funds and did not receive any of these 12b-1 fees.

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