Private Advisor Group must pay clients millions of dollars that the SEC says the massive firm and its advisors saved for themselves while their customers were overpaying for mutual funds.
The Morristown, New Jersey-based registered investment advisor that uses giant wealth manager LPL Financial as its primary brokerage, agreed on July 21 to pay $5.8 million to
That particular conflict of interest has prompted other wealth managers to stop using funds that
Some of these conflicts have been rooted out by changes wealth managers made under the
“While disclosure has been a really important part, it's not the sole way to deal with it,” Borzi said. “The way to deal with these conflicts of interest, at least to the extent that we're talking about products that are securities, is to have the [DOL and SEC] work together.”
Private Advisor Group began requiring the purchase of the lowest-priced share classes available in 2017, and it never received any of the money from the type of fees that the SEC alleges were the primary reason for the higher costs to clients, spokeswoman Kelly Coulter said in an email. Most of the restitution will cover clients who had accounts at the RIA between July 2014 and December 2016, with fewer than 4% of its customers receiving more than $100.
As part of settling the case, the firm didn’t admit or deny the allegations.
“We are pleased to put this matter behind us,” Coulter said. “We are committed to earning our advisors' and clients' trust every day and work diligently to maintain the highest standards for professional conduct throughout our organization.”
The firm has about 700 advisors and $30 billion in client assets. Its last and only other listed regulatory disclosure came in 2017 when a state regulator ordered Private Advisor to pay $20,000 over the allegation that one of its advisors wasn’t registered in the jurisdiction, its Form ADV
Funds without ticket charges reduce the cost to such firms, but not necessarily their clients. Most of the higher costs went to a clearing firm that charged a 12b-1 fee of between 0.25% and 1% for marketing and sales of the funds, according to the SEC. Private Advisor ditched all products that charged that fee in 2017. Still, from 2014 until this month, the firm and its advisors saved the cost of transaction fees without explaining how the choice of otherwise identical share classes directly affected their compensation, according to investigators. Private Advisor had taken the responsibility for trading costs as part of the overall management fee paid by clients.
The failure to include language in firm disclosures making the arrangement clear to clients led to a breach of its fiduciary duty, the SEC said. In addition, the firm violated its duties of care and best execution when it recommended the higher-priced share classes, according to the SEC.
Private Advisor’s restitution will add to
