Although the Securities and Exchange Commission (SEC) has wrapped up an investigation targeting conflicts of interest related to mutual funds fees, it demonstrated last month with an enforcement case with RBC it is still very focused on the topic.
Last month, the SEC ordered the Royal Bank of Canada (RBC) Capital Markets to pay $3.9 million in disgorgement and fines for failing to disclose that it sold customers, including charitable organizations and clients with retirement accounts, more expensive fund share classes although less expensive share classes (of the same fund) were available.
RBC Recommended Share Clients with High Expenses When It Wasn’t Needed
According to the authorities, from approximately July 2012 through August 2017, RBC recommended high-fee versions of funds when low-fee or no-fee versions of the funds were available.
SEC also added that as a result, roughly 4,571 customers paid over $2 million in sales charges, ongoing fees, and other expenses.
RBC Did not Admit or Deny the Charges
Nonetheless, RBC did not admit or deny the charges. Instead, the company released a statement saying how committed it is to ensuring that the firm's brokers comply with industry regulations — adding that it would be converting affected accounts to the correct mutual fund share class.
The settlement was announced a week after the SEC concluded a two-year share-class initiative that prompted financial firms to self-report failures to expose conflicts of interest surrounding fund fees.
SEC Returns More Than $139 Million to Investors Through Exam of Share-Class Disclosures
Through this program, the SEC has returned more than $139 million to investors. It comes as no surprise as the regulator has made share-class disclosures a priority this year. The Financial Industry Regulatory Authority Inc. (FINRA) is also in the middle of a share-class probe involving 529 college-savings plans.
Brokerage industry representatives have censured the SEC's share-class crackdown as "regulation by enforcement," and voiced that the authorities did not explain their expectations about disclosure before rolling out a strike on what is understood as a violation.
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