A Richmond, Va,, advisory firm has been fined by the Securities and Exchange Commission for not properly informing clients about all fees they were being charged for trade transactions, the SEC announced Thursday.
The decision comes at a time when there is a heightened awareness of the requirement for transparency around fees and other details of financial transactions.
Without admitting or denying guilt, RiverFront Investment Group has agreed to be censured and to pay a $300,000 penalty. The firm also is required to post on its website on a quarterly basis the transaction costs passed on to clients who are outside the standard wrap fees charged by the firm for bundled services and the volume of these trades.
RiverFront used brokers rather than the wrap-program sponsor to execute the majority of its wrap-program trading, resulting in additional costs to clients for those transactions. While RiverFront did disclose that some “trading away” from the sponsoring broker could occur, the firm inaccurately described the frequency, rendering its disclosures materially misleading, the SEC says.
“Investors were misled about the overall cost of selecting RiverFront to manage their portfolios,” says Sharon Binger, director of the SEC’s Philadelphia regional office. “Investors in wrap fee programs pay one annual fee for bundled services without expecting to pay more, so if subadvisors like RiverFront trade in a way that incurs additional costs to clients, those costs must be fully and clearly disclosed upfront so investors can make informed investment decisions.”
The SEC says it has included wrap fee programs among its National Exam Program priorities, particularly assessing whether advisers are fulfilling fiduciary and contractual obligations to clients and properly managing such aspects as disclosures, conflicts of interest, best execution, and trading away from the sponsor.