Ameriprise agreed to settle SEC charges that it overcharged retail retirement clients on mutual fund shares — something that has become a pervasive problem for the industry, the regulator says.

The second largest independent broker-dealer disadvantaged certain retirement accounts by not properly ascertaining if those clients could be eligible for less expensive mutual fund share classes, the SEC says. Approximately 1,800 customer accounts paid about $1.8 million in avoidable upfront sales charges, the regulator says.

Although the Minneapolis-based firm disclosed that “certain account types, such as retirement plan accounts, may be eligible for discounts and waivers,” it did not have adequate systems in place to determine whether customers were qualified for discounts, specifically load-waived Class A shares, the regulator says.


A mutual fund investor that’s eligible for a sales charge waiver in Class A shares will likely obtain a higher return than incurring ongoing sales-related costs associated with Class B and C shares in the same fund, says the SEC. However, broker-dealers generally receive higher ongoing fees when their customers hold Class B and C shares.

“Ameriprise generated greater revenue for itself but lower returns for its retirement account customers by recommending higher-fee share classes,” says Anthony Kelly, co-chief of the SEC Enforcement Division's Asset Management Unit.

The firm also omitted material information concerning its own compensation when it recommended the more expensive funds, the regulator says.

The charges are part of a broader initiative by the SEC to stamp out misconduct involving share classes. In fact, the behavior has been so pervasive that the regulator announced a self-reporting program that seeks to incentivize advisors to come forward — or seek harsher penalties.

“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.”

In October, the SEC fined UBS $3.5 million for overcharging customers on mutual funds. More than 15,000 customers paid a total of $18.5 million in unnecessary charges, the regulator says.

Without admitting or denying the findings, Ameriprise consented to a cease-and-desist order and a penalty of $230,000.

Ameriprise cooperated and voluntarily identified the affected accounts, issued payments including interest to the affected customers and converted eligible customers to the mutual fund share class with the lowest expenses, says the SEC.

Ameriprise client assets


“As pointed out in the settlement, Ameriprise voluntarily paid full remediation to clients, with interest,” an Ameriprise spokeswoman wrote in an email. “It’s important to note that this is a long-standing industry topic, and numerous firms have settled with the SEC and FINRA on similar matters.”

For Ameriprise, the latest settlement comes on the heels of a strong fourth quarter earnings report that noted increased profits and assets. Client assets grew 17% year-over-year at Ameriprise’s advice and wealth management segment, which consists one of the largest employee brokerages.

“Our advisors are actually generating even nicer increased productivity,” Ameriprise CEO Jim Cracchiolo said during the firm’s earnings call in January. Assets reached $560 billion, setting a record for the firm for at least the third straight quarter.

Sean Allocca

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