Ohio RIA Agrees To Pay $1.2M To Settle SEC Fee Disclosure Violations

Registered investment advisor O.N. Investment Management Company of Cincinnati will pay $1.2 million to settle allegations that the firm breached its fiduciary duty by failing to disclose a conflict of interest it had with its broker-dealer parent company, the SEC said.

Since 2014, O.N. Investment Management Company (ONIMCO) has been generating revenue for its broker-dealer parent company O.N. Equity Sales Company (ONESCO) through its fund recommendations for clients, the SEC said.

ONESCO profited from recommendations that involved certain mutual funds with no-transaction fee revenue and cash sweep products, the agency said.

“In spite of these financial arrangements, ONIMCO provided no disclosure or inadequate disclosure of the conflicts of interest arising from ONESCO’s receipt of this compensation,” the SEC said in the settlement.

An ONIMCO spokesperson declined to comment on the SEC findings.

The settlement included disgorgement of $866,257, prejudgment interest of $162,396 and a civil penalty of $210,000.

ONIMCO has been registered with the SEC as an investment advisor since 1971 and in 2021 reported $2.16 billion in assets under management, the SEC said. The firm offers financial planning and investment advice to individuals, families, trusts, estates, charities, businesses and other organizations on both a non-discretionary and discretionary basis. ONESCO has been registered as a broker-dealer since 1968 and is a wholly owned subsidiary of the Ohio National Life Insurance Company.

From 2014 to 2017, ONIMCO advised clients to purchase or hold mutual fund share classes that charged 12b-1 fees when lower-cost share classes of those funds were available, the SEC said. As a result, ONESCO received 12b-1 fees that it would not have collected had the clients been given access to the lower-cost share classes. In March 2017, ONIMCO began rebating 12b-1 fees to its clients going forward, the filing said.

During the same period, ONIMCO predominantly recommended clients use certain money market funds for their sweep accounts, and with those accounts the clearing broker would pay ONESCO revenue sharing, the filing said. However, there were other money market funds that could have been used that would have paid ONIMCO’s clients higher yields but without the revenue sharing feature, according to the filing. To rectify this, ONIMCO has since transitioned client sweep accounts to money market funds that do not pay revenue sharing to ONESCO or any other ONIMCO affiliate, the SEC said.

The SEC found there were similar issues with a no-transaction fee program where the clearing broker would share NTF revenue with ONESCO. The clearing broker no longer pays revenue sharing to ONESCO for ONIMCO client assets invested on the NTF platform, the filing said.