U.S. advisory firm American Portfolios Advisors, Inc. (APA) is being sanctioned in a settlement with the securities regulators for overcharging investors by not putting them into the most cost-effective mutual fund classes.
The U.S. Securities and Exchange Commission (SEC) alleged that the firm violated its rules with its “improper mutual fund share class selection practices” — which resulted in clients being charged avoidable ongoing fees.
Specifically, the SEC alleged that, between July 2012 and March 2016, the firm invested clients with fee-based wrap accounts in fund classes that charged so-called “12b-1” fees — ongoing annual fees, similar to trailer fees — when the same funds were available in classes that didn’t charge fees and would be cheaper for clients.
The regulator also alleged that the conflict of interest arising from these class selection decisions wasn’t disclosed to investors.
The firm agreed to settle the regulator’s allegations, without admitting or denying its findings.
Under the settlement, the firm is paying US$1.15 million — including almost US$900,000 in disgorgement plus interest, and a US$250,000 penalty — which it’s required to be pay out to affected clients.