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SEC Charges BD with Overcharging Retirement Accounts

By NTSA Net Staff • March 01, 2018 • 0 Comments
True to its word, the Securities and Exchange Commission has announced a settlement with a broker-dealer and investment advisor that it says overcharged retirement account customers for mutual fund shares.

According to the SEC’s order, Ameriprise Financial Services Inc. disadvantaged certain retirement account customers by failing to ascertain their eligibility for less expensive mutual fund share classes. Ameriprise recommended and sold these customers more expensive mutual fund share classes when less expensive share classes were available, and failed to disclose that it would receive greater compensation from the purchases and that the purchases would negatively impact the overall return on the customers’ investments.

In announcing the settlement, Anthony S. Kelly, Co-Chief of the SEC Enforcement Division’s Asset Management Unit, explained, “As evidenced by our recently announced Share Class Selection Disclosure Initiative, pursuing these types of actions remains a priority for the Division as we seek to get money back in the hands of harmed investors.” In mid-February the SEC’s enforcement division launched an initiative that would waive fines against investment advisers if they admit putting clients into high-fee mutual fund share classes when lower-fee classes were available and agree to reimburse those clients for the excess fees.

In the settlement, the SEC explained that in making those recommendations of more expensive share classes while omitting material facts, “Ameriprise willfully violated Sections 17(a)(2) and 17(a)(3) of the Securities Act. These provisions prohibit, respectively, in the offer or sale of securities, obtaining money or property by means of an omission to state a material fact necessary to make statements made not misleading and engaging in a course of business which operates as a fraud or deceit on the purchaser.”

As a result, Ameriprise “did not provide available sales charge waivers in at least 5,973 transactions involving approximately 1,791 Eligible Customer accounts,” according to the order, which noted that, “in the context of multiple-share-class mutual funds, in which the only reason for the differences in rate of return among classes is the cost structure of the different classes, information about this cost structure would accordingly be important to a reasonable investor.”

All told, the customers affected during the period January 2010 through June 2015 paid a total of $1,778,592.31 in up-front sales charges, CDSCs, and higher ongoing fees and expenses from purchases of mutual fund share classes “for which they did not receive an applicable sales charge waiver or did not otherwise receive the most cost-effective share class for which they were eligible that was available on Ameriprise’s platform during the Relevant Period.” The SEC acknowledged that Ameriprise voluntarily reimbursed this amount, along with $190,797.40 in interest, to those customers, and also voluntarily converted all Eligible Customers holding Class B and Class C shares to the Class A shares with the lowest expenses for which they are eligible, at no cost to the customers. As part of the agreement, Ameriprise will also pay a civil money penalty of $230,000 to the SEC.

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