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Advisors Urged to Self-Report Fee Violations to SEC

By Alex Padalka February 13, 2018

In a bid to crack down on conflicts of interest in the advice industry, the SEC is extending an amnesty to financial advisors who self-report fee violations before this summer and return funds to harmed investors, the regulator says in a press release.

The SEC “will agree not to recommend financial penalties” on advisors who self-report failure to disclose receipt of 12b-1 fees in recommending mutual fund share classes when lower-priced share classes of the same mutual fund were available, the regulator says. Advisors who participate in the SEC’s Share Class Selection Disclosure Initiative can expect the regulator to recommend settlements requiring them to disgorge ill-gotten gains but not pay a civil monetary penalty, according to the press release.

“We strongly encourage advisers to take advantage of the favorable terms we are offering; these terms will not be available to advisers who do not self-report under this initiative, and we will continue to proactively seek to identify and pursue investment advisers that fail to make the necessary disclosures,”Steven Peikin, co-director of the SEC’s Division of Enforcement, says in the press release. The regular also says it will recommend tougher sanctions in future actions against advisors who fail to come forward before June 12.

The SEC has charged nine firms in the past several years over failures to disclose conflicts on interest in mutual fund share class recommendations, according to the press release, resulting in millions of dollars returned to clients and “significant penalties.”


Separately, the regulator has announced a $1.658 billion budget request for fiscal year 2019, which is 3.5% higher than its budget request for fiscal year 2018. The increase is aimed at expanding the scope of the SEC’s oversight and enforcement in areas such as cybersecurity and financial innovation, according to a separate press release from the regulator. The requested budget includes a $45 million boost for information technology spending aimed at enhancing the SEC’s capabilities in risk and data analysis, cybersecurity, automation and exams and enforcement, the regulator says.