The Securities and Exchange Commission has fined an registered investment advisor firm more than $1 million for allegedly charging clients carried 12b-1 and expense-sharing fees for mutual fund share class selection without their knowledge.
Jonathan Roberts Advisory Group, doing-business-as J.W. Cole Advisors (JWCA) in Tampa, Fla., allegedly violated its fiduciary duty by charging clients 12b-1 fees for investments for which there were less expensive alternative share classes between January 2014 and March 2021, the SEC said in a settlement document last week.
Without admitting or denying the findings, JWCA agreed to a cease-and-desist and a censure, the SEC said. The firm also agreed to pay about $989,000 in disgorgement, plus prejudgment interest of around $118,000, as well as a civil penalty of $85,000, the SEC said.
The firm also received fees from an expense-sharing arrangement between the firm and an unaffiliated broker-dealer, J.W. Cole Financial (JWCF), including JWCA’s practice of sweeping its advisory clients’ cash into certain money market mutual funds when lower-cost share classes for the same funds were available, the SEC said.
The firm purchased the fund shares that carried 12b-1 and revenue sharing fees instead of alternatives “that presented a more favorable value under the particular circumstances in place at the time of the transactions, breached its duty to seek best execution for those transactions,” the SEC said.
The firm also failed to adopt and implement written compliance policies and procedures reasonably designed to disclose conflicts of interest related to 12b-1 fees on its Form ADVs, according to the regulator.
This is the third such enforcement action announced by the SEC in recent week. Northwest Advisors settled with the SEC last week, agreeing to pay a fine and disgorgement of $1,147,500 for charging clients unnecessary 12b-1 and wrap fees last week. ISC Advisors settled similar charges earlier in August, agreeing to pay a civil penalty and disgorgement totaling $886,000.