Three American International Group advisory firms have settled federal civil charges that they levied unnecessary fees on at least 1,000 mutual fund clients, the Securities and Exchange Commission says.
The dually registered broker-dealer and investment advisory firms — Royal Alliance Associates, SagePoint Financial and FSC Securities Corp. — are required by law to act in the best interests of their clients. Instead, the SEC asserted Monday, the advisors acted negligently by steering customers into higher-fee fund share classes and keeping them in accounts with gratuitous "wrap fees," which cover trading charges even when a client's trading is minimal.
"Investment advisers must be vigilant about conflicts of interest when selecting mutual fund share classes because the choice may improperly benefit them at the expense of their clients," Marshall S. Sprung, co-chief of the SEC Enforcement Division's asset management unit, said in a statement.
Specifically, the SEC said the firms sold clients mutual fund share classes that included what are called 12b–1 fees — marketing charges that benefit the advisor or broker who sells the fund — even when cheaper share classes were available. As a result, the SEC said, the firms collected about $2 million in superfluous fees.