A faith-based advisor was censured last week after allegedly recommending expensive mutual fund share classes to its minster clients.
The U.S. Securities and Exchange Commission issued a cease-and-desist order to Colorado Springs, Colo.-based Envoy Advisory in an administrative proceeding on Friday after the firm sold clients A-shares of mutual funds when lower cost institutional share classes were available.
Envoy Advisory, with approximately $225 million in assets as of March 29, 2016, offers retirement plans to ministers and clergy.
According to the SEC order, Envoy Advisory allegedly sold Class A mutual find shares to its clients from January 2013 to March 2017, directing the marketing and administration fees to Envoy Securities, its affiliated broker-dealer.
Upon review, the SEC found that Envoy had failed to adopt and implement sufficient compliance policies to prevent improper share-class recommendations, and failed to sufficiently implement a policy to disclose and resolve conflicts of interest between the firm, its broker-dealer, and its clients.
The SEC acknowledged that Envoy ceased recommending Class A shares in October 2016 and began transitioning existing clients’ holdings to institutional share classes, implementing a plan to credit or rebate plan sponsors and IRA holders for any future 12b-1 fees it may receive from legacy holdings. As of June 22, 2017, Envoy had paid approximately $22,246 in rebates through checks to plan sponsors, and another $2,647 in rebates through credits to client accounts.
Envoy also hired a compliance consultant to conduct a third-party review of its procedures and policies, forms ADV, disclosure documents and investment advisory agreements.
In addition to its censure and cease-and-desist order, the SEC has also ordered Envoy Advisory to pay nearly $25,000 in civil penalties in addition to approximately $27,000 in disgorgement and interest.