SEC orders three advisers to pay $12 million to harmed clients

Three U.S. investment advisers have settled charges for breaching fiduciary duties to clients and generating millions of dollars of improper fees in the process.

The U.S. Securities and Exchange Commission says PNC Investments LLC, Securities America Advisors Inc., and Geneos Wealth Management Inc. failed to disclose conflicts of interest and violated their best-execution duties by putting clients in higher-cost mutual fund shares when lower-cost shares of the same funds were available.

The SEC also charged Geneos for “failing to identify its revised mutual fund selection disclosures as a material change in its 2017 disclosure brochure.”

The firms will pay almost $15 million collectively. More than $12 million of that will go to harmed clients.

“These disclosure failures cause real harm to clients,” said C. Dabney O’Riordan, co-chief of the Asset Management Unit, in a release. “We strongly encourage eligible firms to participate in the recently announced Share Class Selection Disclosure Initiative as part of an effort to stop these violations and return money to harmed investors as quickly as possible.”

The Share Class Selection Disclosure Initiative gives eligible advisers until June 12, 2018, to self-report similar misconduct. As part of this program, the SEC says it is willing to “recommend more favorable settlement terms, including no civil penalties against the adviser.”

The SEC also found:

• PNCI and Geneos failed to disclose the conflict of interest associated with compensation they received from third parties for investing clients in particular mutual fund;
• PNCI improperly charged advisory fees to client accounts for periods when there was no assigned investment advisory representative;
• PNCI, SAA, and Geneos each violated provisions of the Investment Advisers Act of 1940, including an antifraud provision.

Without admitting or denying the findings, the advisers each consented to a cease-and-desist order and a censure. PNCI must pay $6.4 million in disgorgement and prejudgment interest, along with a $900,000 penalty. SAA must pay $5.1 million in disgorgement and prejudgment interest, along with a $775,000 penalty. Geneos must pay $1.6 million in disgorgement and prejudgment interest, along with a $250,000 penalty.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.