A hybrid advisor in Massachusetts has been charged by the SEC with failing to disclose conflicts underlying the fees it charged to investment clients.

The agency filed the civil complaint in U.S. District Court against Bolton Securities Corp., a firm in Bolton, Mass., that conducts business under the name of Bolton Global Asset Management and which is both a registered investment advisor and broker-dealer, according to a press release.

The firm, which denied the charges and promised to fight them in court, manages $2 billion in assets for thousands of advisory clients, according to the complaint.

From August 2014 to at least the end of March 2018, Bolton Securities invested clients in mutual fund share classes that charged 12b-1 fees that were paid to Bolton Global Capital Corp., an affiliated broker-dealer under common ownership with Bolton Securities, the SEC said.

"Bolton’s Securities’ relationship with Bolton Global Capital is not a mere matter of Bolton Securities using Bolton Global Capital as a broker," the SEC said in the complaint. "These entities substantially overlap each other and are under common control."

This relationship was underscored by the fact that a husband and wife, not named in the complaint, directly or indirectly own a controlling interest in both entities, the agency said. Both firms also work out of the same location in Bolton and have executive officers who work at and have minority interests in both entities, according to the complaint.

Clients paid these 12b-1 fees despite the fact that the funds had share classes available without the fees, the complaint added.

"As a result of Bolton Securities’ negligence, certain of its clients paid higher costs and had lower returns than other similarly situated clients holding the same mutual funds," the complaint said.

The complaint accuses the firm of violating securities laws by failing to disclose to clients the conflicts inherent in the fees and the fact that share classes were available without the 12b-1 fees.

"As an investment adviser, Bolton Securities owes its advisory clients a fiduciary duty to act in its clients’ best interests and to fully disclose all material facts about the advisory relationship, including disclosing any conflicts of interest that might cause Bolton Securities to put its own interests before those of its clients so that its clients can decide whether to give informed consent to these conflicts," the SEC said in the complaint.

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