SEC Fines Firm $300K For Failing To Disclose Fees

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SEC Fines Firm $300K For Failing To Disclose Fees

The SEC fined RiverFront Investment Group of Richmond, Virginia $300,000 for charging clients additional fees beyond their wrap program for investment management. The firm agreed to the penalty without admitting or denying the allegations. The Commission censured the firm as well.

This case was the result of the SEC prioritizing wrap account examinations previously this year. It is investigating whether advisers are acting in the best interests of their clients in these increasingly popular products.

The SEC accused RiverFront of failing to disclose to investors the frequency with which it would trade in their accounts through a broker-dealer who was not the wrap program sponsor, which created transaction costs in addition to the wrap fee.

Between 2008 and mid-2009, RiverFront used its designated broker-dealer but allegedly started a large amount of “trading away” (using other brokers) in late 2009.

RiverFront claims it was trying to find the best execution prices. According to the SEC, RiverFront did not profit from trading away. However, it made clients incur “millions of dollars worth” of additional charges.

RiverFront failed to inform its clients of its use of non-designated brokers until August 2011.

“Investors were misled about the overall cost of selecting RiverFront to manage their portfolios,” said Sharon Binger, director of the SEC’s Philadelphia Regional Office. “Investors in wrap fee programs pay one annual fee for bundled services without expecting to pay more, so if subadvisers like RiverFront trade in a way that incurs additional costs to clients, those costs must be fully and clearly disclosed upfront so investors can make informed investment decisions.”

If you or someone you know has lost money as a result of an investment or Ponzi scheme, please contact Richard Frankowski at 888-741-7503 to discuss your potential legal remedies or complete the contact form.

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