Cetera Advisors, LLC, a Denver, Colo.-based registered investment advisor and broker-dealer, was charged by the Securities and Exchange Commission with breaching its fiduciary duty and defrauding its retail advisory clients, resulting in the firm generating more than $10 million in undisclosed compensation.

According to the SEC’s complaint, from September 2012 to December 2016, Cetera failed to act in its clients’ best interests by selecting and holding mutual fund investments that cost its clients more (and paid Cetera more) when it knew that lower-cost, otherwise identical investments were available to its clients, and failing to properly disclose this practice or its conflict of interest.

The complaint alleged that Cetera did not disclose to its clients that it received compensation from a third-party broker-dealer for investing Cetera’s clients in certain mutual funds that paid revenue sharing over other mutual funds that did not. The arrangement provided a financial incentive for Cetera to maintain a relationship with the clearing broker so it could continue to receive revenue sharing.

Cetera also failed to disclose that it receive at least $1.7 million of compensation that certain mutual funds paid to the clearing broker, which was shared with Cetera. The complaint said these payments created a conflict of interest because they provided a financial incentive for Cetera to select the mutual funds that paid these fees over other investments when providing investment advice to its advisory clients, and because the arrangement with the clearing broker allowed Cetera to continue to receive service fees.

Moreover, the complaint alleged that Cetera directed its clearing broker to markup certain fees by up to 300% charged to Cetera's advisory clients. The clearing broker paid these fees to Cetera after receiving them from clients. These payments created a conflict of interest, and again, there was no disclosure from Cetera to its clients, the SEC said.

As a result of these practices, the SEC said Cetera generated more than $10 million in undisclosed compensation.

A spokesman for Cetera said the firm does not comment on legal matters.

The SEC's complaint, filed in the U.S. District Court for the District of Colorado, seeks a permanent injunction, disgorgement of ill-gotten gains plus prejudgment interest, and a penalty.