SEC Probes Whether Mutual Fund Managers Are Charging Investors Undisclosed Fees

The Securities and Exchange Commission is looking into whether Franklin Templeton, Oppenheimer Funds (OPY), J.P. Morgan Chase & Co. (JPM), and other mutual fund managers are charging investors for fund fees that have not been fully disclosed. While money managers are allowed to use some of investors’ money to pay compensation to the brokers who sell a fund’s shares, as well as for certain marketing purposes, the regulator wants to know whether firms are exceeding the allowed limits.

The Commission is trying to find out whether mutual fund companies have come up with ways to make extra payments to brokers by using investor assets to cover certain services, such as the consolidation of client trading records. The agency is worried that proper disclosure of these added fees are not being made to investors. The SEC is also wondering if brokers are more inclined to recommend funds that provide such additional payments, compelling them to prioritize profit over funds.

Fund companies have said that they do properly disclose fees for marketing. Oppenheimer, which is one of the companies that the SEC has investigated over this issue, has said that it doesn’t bill mutual fund clients for recordkeeping costs but that the money comes from the firm.

Still, the regulator remains worried especially because money managers have had to work harder in the last few years to get broker-dealers to sell their products. Investors have been gravitating more toward index funds because these funds pull a smaller percentage from their assets for covering fees. Also, according to The Wall Street Journal, fund companies could theoretically circumvent the limits allowed for how much of an investor’s assets a fund can spend on distribution and marketing.

Unfortunately, every year there are investors who sustain significant losses because of securities fraud and other kinds of broker misconduct. Please contact Shepherd Smith Edwards and Kantas, LTD LLP today to ask for your free case consultation with an experienced mutual fund fraud lawyer.

SEC Cranks Up Probe Into Fund Firms’ Fees, The Wall Street Journal, July 16, 2015

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