Ameritas Advisory Services of Lincoln, Neb., a subsidiary of Ameritas Life Insurance, will pay $4.6 million to settle allegations that it failed to act in its clients’ best interests with regard to share class selection or disclose conflicts of interest around fee markups, margin interest and business credits, according to the SEC.
Of the $4,628,194 settlement, Ameritas will pay disgorgement of $3,334,804, prejudgment interest of $543,390 and a civil penalty of $750,000.
Ameritas could not be reached for comment by press time.
According to the SEC, from at least February 2014, Ameritas failed to disclose to clients the following conflicts regarding compensation: revenue sharing payments from its unaffiliated clearing broker; markups on clearing broker fees for advisory clients’ transaction fees; revenue received from the clearing broker on the rate of margin interest charged to advisory clients, and an annual business development credit paid by the clearing broker to Ameritas that was based on Ameritas keeping a minimum number of accounts, asset balances and trading volume in certain mutual fund programs and margin accounts.
In addition, Ameritas did not direct clients to cheaper share class options for mutual funds and money market funds when the cheaper option didn’t qualify the firm for its revenue sharing arrangement with the clearing broker, the filing said.
Until October 15, 2021, Ameritas was the registered investment advisor arm of a dually registered investment adviser/broker-dealer, Ameritas Investment Company (AIC). In November 2021, AIC moved its advisory business to be a separate entity under the name Ameritas Advisory Services as part of a corporate reorganization, the SEC said.
“Many mutual funds pay the clearing broker a recurring fee to have some or all of their fund share classes offered as part of the clearing broker’s mutual fund programs,” the SEC said, adding that AIC had such an agreement in place from at least 2014. “As a result of the revenue sharing agreements, the Advisory Firm had an incentive to recommend mutual funds and mutual fund share classes that paid AIC revenue sharing as opposed to those that did not.”
The clearing broker also paid Ameritas a fixed dollar about for transactions the fell under its transaction fee program, and that dollar amount increased as the amount of all positions increased, the filing said.
“No disclosure of the revenue sharing and the associated conflicts of interest were provided until October 2020,” when Ameritas amended its disclosure in its ADV Part 2A brochure, the SEC said. However, the firm continued to receive these payments until September 2021.
In addition to other revenue-boosting arrangements with the clearing broker, the clearing broker paid Ameritas 10 payments of $250,000, totaling $2,500,000, as “annual business development credits,” the SEC said.
In addition to the monetary settlement, Ameritas will evaluate which affected clients should be moved to less expensive share classes, the filing said.