Interest fee

RIA fined $5.8 million by SEC for 12b-1 fee violations related to blocked accounts

Since at least July 2014, PAG and its IARs have avoided incurring transaction fees for global client transactions by investing certain client assets in mutual fund share classes from a no-fee program proposed transaction by its clearing house, the SEC order says.

Some classes of mutual fund shares charged a 12b-1 fee when lower-cost classes of shares of the same fund were made available to customers through the clearing house for a transaction fee. “Although PAG and its IARs did not receive any of these 12b-1 fees, by investing clients in NTF share classes, PAG and its IARs avoided paying transaction fees on client transactions of these mutual funds,” the SEC said.

PAG has failed to provide full and fair disclosure to clients regarding its use of mutual fund share classes offered through the NTF program in wrap accounts and its associated conflicts of interest, the SEC said.

“Similarly, PAG breached its duty of care, including its duty to seek best execution, by requiring advisory clients with wrap accounts to invest in fund share classes that charged 12b-1 fees. where classes of shares of the same funds which exhibited more favorable value were available at that time and failing to undertake an analysis to determine whether the particular classes of shares of mutual funds which he selected were in the best interests of its client advisors,” the order reads.

Because of this conduct, PAG violated Section 206(2) of the Advisors Act, the SEC said. Within 10 days of entering the order, Private Advisor Group must deposit $5.8 million into an equitable fund to be distributed to investors.