The Securities and Exchange Commission (SEC) continues to initiate cases against advisors for 12b-1 fee violations since ending the Share Class Selections Disclosure Initiative in April 2020.
Under the Share Class Selection Initiative, the Division of Enforcement instituted a self-reporting program to protect advisors from undisclosed conflicts of interests related to 12b-1 fees and return money to investors. According to James Lundy, former SEC attorney, the Share Class Selection Initiative has ended. Still, the SEC continues to bring disclosure cases with a new focus on violations of the revenue sharing component.
- Kestra Financial
The SEC alleged Kestra Advisory Services and Kestra Private Wealth Services selected mutual funds for clients for which their affiliated broker-dealer received revenue-sharing payments from the clearing advisor. Both divisions have been ordered to pay $103 million for failure to disclose the received compensation.
- Educators Financial
The SEC charged Educators Financial with violations related to billing procedures and mutual fund share class selection for clients, including selecting funds that charged 12b-1 fees. According to the SEC order, Educators Financial failed to consistently aggregate the value of all accounts held by family members living in a single household when determining the fee rate. This failure resulted in specific clients paying higher advisory fees than they should have. Educators Financial also failed to refund prepaid advisory fees after clients concluded the advisory relationship.
- J.W. Cole Advisors (JWCA)
JWCA has been charged with violations related to mutual fund share class selection procedures and 12b-1 fees. According to the SEC order, JWCA's unaffiliated broker-dealer, J.W. Cole Financial Inc. (JWCF), received 12b-1 revenue sharing and cash sweep fees due to JWCA's advisory clients' investments between January 2014 and March 2021.
- Voya Financial Advisors
Voya Financial Advisors has been ordered to pay $22.9 million to settle charges alleging that the firm failed to disclose 12b-1 fees charges to its clients. The SEC also alleged Voya made misleading statements regarding investment advice about mutual funds, illiquid alternative investments, and cash sweep vehicles.
- Northwest Advisors
Northwest Advisors (NWA) purchased, recommended, and held mutual fund share classes that charged 12b-1 fees for specific clients rather than lower costs share classes of the same funds available to the clients and did not charge 12b-1 fees.
- ISC Advisors
ISC Advisors (ISCA) allegedly recommended mutual fund share classes that paid ISCA's affiliated broker-dealer 12b-1 fees when lower-cost shares were available and for receiving revenue sharing in cash sweep programs. ISCA also failed to provide complete and fair disclosure of the payments and the conflicts of interests.
- Centaurus Financial
Centaurus has agreed to pay over $1.2 million for supplying inadequate information regarding 12b-1 fees from client investments.
- Bolton Securities
The SEC alleged that Bolton Securities failed to disclose material conflicts of interest related to mutual fund 12b-1 fees and principal trading compensation produced from client investments.
- CapWealth Advisors
The SEC alleged that CapWealth failed to adequately disclose the material conflicts of interests concerning the 12b-1 fees it received through CapWealth's affiliated broker-dealer.
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