The program keyed on what theSEC called “potential widespread violations” relating to thedisclosure of 12b-1 fees on mutual funds sold to retail investors.(Photo: Shutterstock)

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The Securities and Exchange Commission has settled charges with79 investment advisory firms under its share-class disclosure initiative, which waslaunched just over a year ago.

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More than $125 million will be returned to investors from thesettlements, which includes earnings from improper or undisclosed fees and interest on the earnings.Under the terms of the program, the SEC will not impose penaltiesagainst the self-reporting firms.

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Under the SCDI, registered advisers were allowed to self-reportviolations of the Investment Advisers Act of 1940 within afour-month period.

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Related: SEC: 'Scores' of RIAs investigated undershare-class disclosure initiative

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The program keyed on what the SEC called “potential widespreadviolations” relating to the disclosure of 12b-1 fees on mutualfunds sold to retail investors, and recommendations of higher costshare classes when lower-cost shares of the same funds wereavailable.

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In a press release, the SEC said it continues to evaluate firmsthat self-reported prior to the June 12, 2018 deadline.

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Steven Peikin, co-director of the SEC's division of enforcement,called the failure of fiduciaries to adequately disclose 12b-1 feesa “pervasive problem.”

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“Most of the advisory clients harmed by the disclosure practiceswere retail investors, and in just a year's time, we madetremendous headway in putting money back into their hands whilesignificantly improving the quality of firms' disclosures,” Peikinsaid in a statement.

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The SEC has made proper disclosure of 12b-1 fees a priority forseveral years. In 2016, the Commission's Office of ComplianceInspections and Examinations issued a risk alert on share classdisclosures and advised firms to reexamine internal policies.

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“Despite the fiduciary duty imposed by the Advisers Act, an OCIErisk alert, Form ADV reminders, and numerous individual Commissionenforcement actions, investment advisers were not adequatelydisclosing, or acting consistently with the disclosure regardingconflicts of interest related to their mutual fund share classselection practices,” the Commission said in its release.

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The ill-gotten fees were paid to registered advisers in theircapacity as broker-dealers or to broker-dealer affiliates, ordirectly to personal who are registered with the SEC, according tothe Commission.

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SEC Chairman Jay Clayton said the SCDI program is expected toimprove disclosure practices throughout industry.

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“I am pleased that so many investment advisers chose toparticipate in this initiative and, more importantly, that theirclients will be reimbursed. This initiative will have immediate andlasting benefits for Main Street investors, including throughimproved disclosure,” Clayton said in a statement.

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The firms have 30 days to notify affected clients. Under theterms of the settlements, the firms agree to being censured, but donot admit or deny the findings.

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Among the 79 firms that self-reported and settled with the SEC,Wells Fargo agreed to pay out $17.3 million to clients; LPL $9.3million; Raymond James $6.87 million; Stifel, Nicolaus and Co.$6.03 million; and Transamerica $6.02 million.

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Nick Thornton

Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.