SEC Fines RiverFront Investment $300,000 for Overcharging Clients

Virginia-based RiverFront Investment Group will pay a $300,000 penalty for overcharging clients to cover the cost of several services bundled together, according to a regulatory announcement from the U.S. Securities and Exchange Exchange An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv Read this Term Commission (SEC).

The SEC claims that RiverFront Investment failed to properly prepare clients for additional transaction costs beyond the 'wrap fees' they typically pay. The wrap fees program allows investment advisors to charge one straightforward fee to their clients, simplifying the process for both the advisor and the customer.

RiverFront agreed to pay a penalty of $300,000 to settle the charges without admitting or denying them. In addition, it will take another remedial action to prevent future related violations through posting on its website the volume of trades executed away from sponsors and the associated transaction costs on a quarterly basis.

Undisclosed Costs

More specifically, the SEC investigation found that RiverFront disclosed to clients in its Forms ADV, which was not amended until August 2011, that their trades are typically executed through the sponsoring broker so the wrap fee would cover the transaction costs. However, the company actually used brokers besides the sponsor to execute the majority of its wrap program trading, resulting in additional costs that passed through to clients on a per-share basis.

Although RiverFront did not profit by trading away from the designated broker-dealer and already disclosed that such a practice may occur, the firm inaccurately described the frequency, rendering its disclosures materially misleading. Therefore, its clients paid millions of dollars’ worth of transaction costs that were not covered by the wrap fee.

The SEC noted that the so-called wrap fee program was included among annual examination priorities within the National Exam Program. The step was taken particularly to assess whether advisers are fulfilling fiduciary and contractual obligations to clients and properly managing such aspects as disclosures, conflicts of interest, best Execution Execution Execution is the process during which a client submits an order to the brokerage, which consequently executes it resulting in an open position in a given asset. The execution of the order occurs only when it is filled. There is typically a time delay between the placement of the order and the execution which is called latency.In the retail FX space, reliable brokers always strive to deliver best execution to their clients in order to maintain a solid business relationship with them. This is a co Execution is the process during which a client submits an order to the brokerage, which consequently executes it resulting in an open position in a given asset. The execution of the order occurs only when it is filled. There is typically a time delay between the placement of the order and the execution which is called latency.In the retail FX space, reliable brokers always strive to deliver best execution to their clients in order to maintain a solid business relationship with them. This is a co Read this Term, and trading away from the sponsor.

Sharon Binger, director of the SEC’s Philadelphia Regional Office, said that investors were misled about the overall cost of selecting RiverFront to manage their portfolios.

Mr. Binger further stated in the press release: “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.”