Two large wealth management companies will pay hefty fines for failing to disclose conflicts of interest to their clients.
In an administrative proceeding on Friday, two J.P. Morgan wealth management subsidiaries will pay $267 million to settle charges that they failed to inform clients of the benefits the company incurred from investing assets in J.P. Morgan funds.
In a parallel action, JPMorgan Chase Bank will pay an additional $40 million to the U.S. Commodities Futures Trading Commission.
The SEC alleges that J.P. Morgan Securities and JPMorgan Chase Bank preferred to invest client assets in their proprietary investment products without disclosing their preference to clients.
The preferred products affected clients’ ability to direct and approve their asset allocation and select fund managers, according to the SEC.
From 2008 to 2013, J.P. Morgan Securities failed to disclose its preference for J.P. Morgan-managed mutual funds for retail investors as it used Chase Strategic Portfolio, a unified managed account program sold through Chase Bank branches.
Investors allegedly were not informed that the availability and pricing of services provided to the company through another J.P. Morgan affiliate was tied to the amount of Chase Strategic Portfolio assets invested in J.P. Morgan proprietary products.
Furthermore, the SEC alleges that J.P Morgan Securities failed to disclose that some mutual funds it managed that were purchased for Chase Strategic Portfolio clients offered a less expensive share class that would generate less revenue for the company than the share class it chose.
According to the SEC complaint, J.P. Morgan failed to disclose these conflicts of interest to Chase Strategic Portfolio clients on its forms ADV.
JPMorgan Chase Bank also allegedly failed to inform high-net-worth and ultra-high-net-worth clients of its U.S. Private Bank and Chase Private Bank who were invested in J.P. Morgan Investment Portfolio of its conflicts of interest when using JPMorgan-managed hedge funds.