Welcome to Financial Advisor IQ
Follow

Faith-Based RIA Censured Over 12b-1 Fees

September 13, 2017

The SEC has issued a cease-and-desist order and censured a RIA serving faith-based clients for allegedly overcharging them on mutual funds, the regulator says.

From January 2013 through March 2017, Envoy Advisory allegedly sold its clients Class A mutual fund shares instead of the less expensive institutional shares available to its clients, according to the SEC’s cease-and-desist order.

Envoy Advisory, whose clients are primarily faith-based organizations that offer retirement plans, allegedly paid the 12b-1 fees it received from mutual funds to its affiliated broker-dealer, Envoy Securities, the regulator says.

The firm allegedly received at least $24,893 in such fees as a result, according to the order. Envoy Advisory’s Form ADV disclosure to plan sponsors claimed some mutual funds it offered may pay 12b-1 fees to a “dealer” but failed to mention the dealer was its affiliate, the SEC says.

Envoy Advisor also allegedly failed to disclose a conflict of interest in recommending the Class A mutual fund shares to clients who hold individual retirement accounts or Roth IRAs directly with the company, the SEC says. Such clients make up about 13% of the firm’s assets under management, according to the regulator.

Under the deals of the settlement between the SEC and Envoy Advisory, the firm must pay $24,893 in disgorgement and $2,106 in prejudgment interest, the regulator says. The SEC had taken into account the firm’s cooperation, according to the order.

(Getty)

Envoy ceased recommending mutual funds with 12b-1 shares in October 2016 and began shifting its advice clients’ holdings into institutional shares, the SEC says. The company also began voluntarily rebating the fees and had sent around $24,893 in rebates by June 22, according to the regulator.

Envoy Advisory’s six registered reps managed approximately $225 million for around 1,800 advice clients as of the end of March 2016, InvestmentNews writes. The company did not return the publication’s request for comment.

By Alex Padalka
  • To read the InvestmentNews article cited in this story, click here.