According to the Securities and Exchange Commission (SEC), Ameritas failed to act in its advisory clients’ best interests when selecting mutual fund share classes and money market funds. The regulator has announced a settlement with another company over allegations of mutual fund share class selection infractions, among other things.
The SEC has targeted Ameritas Advisory Services, which allegedly failed to reveal conflicts of interest in revenue-sharing arrangements that resulted in customers being harmed, among other infractions.
The SEC brought the case against Ameritas Advisory when its advisory business was part of Ameritas Investment. Ameritas Investment is a registered investment advisor that also doubles as a dealer-broker firm.
The SEC claims that Ameritas Advisory invested certain advisory client accounts in share classes of mutual funds and money market funds when the clients were entitled to superior alternatives, violating its duty to obtain the best execution.
According to administrative proceeding reports published by the SEC, it is alleged that the firm violated its responsibility by not conducting a study into whether the share classes and money market funds it selected were in clients’ best interests.
The SEC charged Ameritas for failure to disclose compensation on markups for advisory clients’ transaction costs, revenue on margin interest charged to advisory clients, and a business development credit received when the affiliated registered investment advisor company maintained “within a range, minimum accounts, asset balances, and trading volumes in certain revenue sharing paying mutual fund programs and margin accounts.”
Ameritas accepted a cease-and-desist order and a censure and was ordered to pay disgorgement of approximately $3.3 million, as well as prejudgment interest of $543,390, and a $750,000 civil money penalty. Ameritas, however, did not admit or deny the findings.
The SEC has been investigating mutual fund share class selection irregularities for many years.
In 2018, the Securities and Exchange Commission (SEC) began its Share Class Selection Disclosure Initiative, giving leeway to firms that self-reported stock-class infractions. According to the SEC, the program recovered over $134 million in investor assets by the time it came to an end in April 2020.
The SEC has since launched numerous investigations against other firms over suspected stock class selection breaches.
The SEC recently announced a $1.2 million settlement with O.N. Investment Management over allegations that the firm violated mutual fund share class selection and paid 12b-1 fees in violation of the law.
In December, the regulator announced that it had fined Avantax $17 million for alleged 12b-1 fee violations at 1st Global Advisors, which Avantax’s parent company purchased in May 2019.