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SEC - Brokers' Conflicts of Interest Cost Investors Over $125 Million in Mutual Fund Over-Charges

79 Different Brokers and Investment Advisors have settled charges that they engaged in numerous violations including mutual fund over-charges and undisclosed conflicts of interest that cost investors over $125 million.1 These charges harm investors by unfairly exposing them to fees that chip away at the value of their investments. The brokers agreed to pay over $125 million to the Securities and Exchange Commission (SEC) which will be returning funds to investors. https://www.sec.gov/news/press-release/2019-28.

Over-charges in the sale of mutual fund shares have cost retirement plan holders and investors billions of dollars.2 In order to curb ongoing harm to investors the SEC set up a program that incentivized self-reporting by brokers and investment advisors.

The SEC found that, even though lower-cost mutual fund share classes of the same fund and representing an interest in the same portfolio of securities were available to their clients, the brokers and investment advisers placed their clients in higher-cost mutual fund shares that charged excessive and recurring fees. Those excessive fees were then deducted from the investor's assets. The fees, meanwhile, were routinely paid to the investment advisers in their capacity as brokers, to their broker-dealer affiliates, or to their personnel who were also registered representatives.

The advisory failures addressed in the latest SEC orders are just the most recent in ongoing findings addressing this harmful practice in mutual fund sales. Since 2013, the SEC and Financial Industry Regulatory Authority (FINRA) have sanctioned at least 100 broker dealers for similar fiduciary violations.

These kinds of fee structures create a conflict of interest between the advisors and their clients because the investment advisers stood to benefit from the clients' paying higher fees. Moreover, the SEC's Division of Enforcement, noted: "An adviser's failure to disclose these types of financial conflicts of interest harms retail investors by unfairly exposing them to fees that chip away at the value of their investments."

A 2015 Study by the White House Council of Economic Advisors concluded that "conflicted advice costs Americans about $17 billion in foregone retirement earnings each year."3

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Rodriguez Tramont & Nuñez, P.A. has collected millions of dollars for 401k retirement plan investors and other investors who were charged excessive mutual fund fees by their brokers. 

If you are concerned that you have been overcharged and may have paid excess fees, call an attorney at Rodriguez Tramont & Nuñez, P.A.

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1 Firms Charged:

2 The Effects of Conflicted Investment Advice on Retirement Savings, White House Council of Economic Advisors, February, 2015 p. 21 ("conflicted advice costs Americans about $17 billion in foregone retirement earnings each year.")

3 The Effects of Conflicted Investment Advice on Retirement Savings, White House Council of Economic Advisors, February, 2015.

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