Nearly three years after a case involving disclosure of conflicts of interest, a midsize wealth manager has settled another SEC enforcement action involving the same issue.
Ameritas Advisory Services, a Lincoln, Nebraska-based RIA owned by insurer and benefits firm Ameritas and affiliated with brokerage Ameritas Investment Company, agreed to pay $4.6 million to settle SEC allegations it failed “to provide full and fair disclosure” of third-party payments such as revenue sharing and cash sweeps,
It also follows a settlement of $3.4 million that Ameritas
The Ameritas case and others against units of MassMutual, Valic, Voya, Prudential and Principal display how the enforcement actions could figure into 401(k) lawsuits as well, said Chris Tobe, an industry watchdog and consultant who wrote a book called “Kentucky Fried Pensions.”
“This is the latest of a number of [cases against] advisor affiliates of insurance companies by the SEC which shows that revenue sharing and share class violations are clear fiduciary violations,” Tobe said in an email. “While Ameritas has a small book of 401(k) business, many of these insurance companies have hundreds of plans. These SEC violations have a significant impact on ERISA 401(k) litigation around these insurers. It will be hard for fiduciaries to defend not knowing about SEC violations of the exact same allegations made in cases.”
Ameritas has already updated its disclosures about the revenue sharing conflicts and reviewed its procedures surrounding its mutual fund menus, cash sweeps, transaction fee markups, margin interest, an annual business development credit payment from its clearing firm and best execution, according to the order. Under the settlement, the firm agreed to notify affected clients and evaluate whether lower-priced share classes of funds are available for each account.
The firm’s RIA “worked with the U.S. Securities Exchange Commission to come to a mutually agreeable settlement,” Ameritas spokesman Derek Rayment said in an email. “AAS remains committed to regulatory compliance and will continue to uphold the integrity of its services.”
At their root, the Ameritas case and the wave of settlements and pending SEC lawsuits against a few firms
The often boilerplate and complicated language in the Form ADV carries big stakes for clients whose returns are lower over time with every basis point of the higher fees. For its part, the industry remains interested in maintaining its traditional business models and the accompanying sizable third-party incentive payments they have received for a long time. For example, the business development credit cited in the Ameritas case amounts to $2.5 million over 10 years.
The regulator accused Ameritas of failing to give its clients adequate disclosure of that credit and three other kinds of incentives: revenue sharing, margin interest payments and markups on transaction fees. Furthermore, investigators say the firm didn’t adopt policies reasonably designed to prevent the violations of the Advisers Act.
“The Advisory Firm also breached its duty to seek best execution by causing certain advisory clients to invest in share classes of mutual funds and money market funds when share classes of the same funds were available to the clients that presented a more favorable value for these clients under the particular circumstances in place at the time of the transactions and breached its duty of care by failing to undertake an analysis to determine whether the particular mutual fund and money market fund share classes it recommended were in the best interests of its advisory clients,” according to the order.
To settle the case, Ameritas agreed to pay disgorgement of more than $3.3 million, a civil money penalty of $750,000 and prejudgment interest of $543,390.
The firm launched its RIA in October under a corporate reorganization that converted its dually registered wealth manager, Ameritas Investment Company, into a brokerage-only firm and moved advisory business into Ameritas Advisory Services,
