Cozad Asset Management, a Champaign, Illinois-based firm, agreed to a settlement of $416,870, including a $10,000 civil fine, the SEC said.
Cozad, which managed $1.18 billion of customer assets as of May 2019, reported its fund-class violations to the regulator several months after the self-disclosure deadline. But the SEC said it considered the fact that Cozad reported its issues after realizing that an unaffiliated brokerage firm that sold its funds had participated in the self-disclosure initiative.
Merrill Lynch is no stranger to regulator-ordered investor reimbursements. The firm was required to reimburse customers $89 million and pay the Financial Industry Regulatory Authority (Finra) an $8 million fine for failing to waive sales charges on class A fund shares for eligible charities and retirement account customers in 2014.
The firm announced to brokers earlier this year that it will convert class C fund shares to shares with less expensive annual fees after customers hold them for five years in order to comply with the SEC’s new Regulation Best Interest, which becomes effective June 30.
Class C shares carry no upfront sales charges, but their high annual commissions offset sales charges if held for longer periods.
To ramp up its advisor compliance, Merrill Lynch hired Susan Axelrod, the former head of Finra’s regulatory operations, as chief supervisory officer for its wealth management businesses in 2018.
In addition to requiring disgorgement, firms that participated in the self-disclosure program agreed to move clients to lower-cost share classes if available, to notify investors of their eligibility for reimbursement within 30 days of settlement and to correct relevant disclosure documents