The U.S. Securities and Exchange Commission says RiverFront Investment Group has agreed to pay a $300,000 to settle allegations that the firm charged clients additional investment management fees beyond the agreed upon wrap fees. RiverFront is settling the SEC charges without denying or admitting to them.
With wrap fee programs, clients pay a yearly fee that is supposed to cover a number of services, including the cost of trades made by a sponsoring brokerage firm. Any additional fees have to be fully disclosed.
According to the regulator, RiverFront used a designated broker-dealer from ’08 until late ’09, which is when it started to use other brokers. However, although RiverFront told investors that some “trading away” from the sponsoring broker was occurring, the firm did not accurately describe how often this was happening. The use of these other brokers cost clients additional fees.
RiverFront maintains that it had been looking for best execution prices when working with the other broker-dealers, and the SEC acknowledges that the firm did not make money by trading away when it used these brokerage firms. However, clients still paid millions of dollars in added charges. It wasn’t until late 2011 that RiverFront modified its Form ADV disclosure so that clients were notified about its use of non-designated brokers.
The SEC said that RiverFront violated certain sections of the Investment Advisers Act of 1940 and Rule 2014-1(a). As part of the settlement, RiverFront has agreed to publish how much “trading out” it does with brokers who are not wrap sponsors, as well as what this will cost investors, on its website.
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Read the SEC Order (PDF)