Three prominent firms settled SEC charges to the tune of almost $15 million for overcharging clients on mutual fund share classes — something that has become so pervasive in the industry that the regulator is temporarily allowing violators to come forward.

Securities America Advisors, PNC Investments and Geneos Wealth Management settled charges for breaching fiduciary duties after selling customers higher priced mutual fund shares when less expensive options were available, according to the SEC orders.

PNC and Geneos were also charged with further violations including failing to disclose conflicts of interests surrounding compensation they received from third parties, the SEC says. PNC also improperly charged advisory fees to accounts when there was no assigned investment advisory representative, the regulator says.

In Securities America’s case, for example, Class A shares that incur an ongoing 12b-1 fee of generally 25 basis points per year were sold to clients when Class I shares that do not charge a 12b-1 fee were available, says the regulator.

“These disclosure failures cause real harm to clients,” says C. Dabney O’Riordan, co-chief of the SEC’s Asset Management Unit. As part of the settlement, more than $12 million will be repaid to harmed clients, the SEC says.


All three investment advisors say the violations are industrywide problems and that they have fully cooperated with the investigation, according to the firms.

The charges are part of a broader initiative by the SEC to stamp out such misconduct. In fact, the behavior has been so ubiquitous that the regulator opened a program to incentivize advisors to voluntarily come forward — or seek harsher penalties.

Advisors can self-report violations through the Share Class Selection Disclosure Initiative and can take advantage of a more lenient recommendation from the regulator, including no civil penalties against the advisor, they say. The initiative expires June 12, 2018.

“This reflects an attempt to officially deal with a problem that we're continuing to see both on the enforcement side and in [the Office of Compliance Inspections and Examinations],” SEC enforcement co-director Steve Peikin said at the regulator’s annual SEC Speaks conference in February. “They're getting paid more and they're not disclosing the system of compensation, and we see this as a widespread problem.”

Ameriprise settled similar charges from the regulator in March. In that case, Ameriprise sold customers Class B and C shares with ongoing sales-related costs when lower cost Class A shares were available, the SEC says.

In October, the SEC fined UBS $3.5 million for overcharging 15,000 customers more than $18 million, the regulator says.

PNC will repay $6,407,770 in disgorgement along with a $900,000 penalty; Securities America must pay $5,053, along with a $775,000 penalty; and, Geneos must pay $1,558,121 along with a $250,000 penalty.

Securities America has approximately $15.6 billion in assets under management; PNC has $14 billion in AUM; and, Geneos has $2.6 billion in AUM, according to their Form ADVs.

“We strongly encourage eligible firms to participate in the recently announced Share Class Selection Disclosure Initiative as part of an effort to stop these violations and return money to harmed investors as quickly as possible,” O’Riordan says.

Sean Allocca

Sean Allocca is the associate editor of Financial Planning, On Wall Street and Bank Investment Consultant.