July 14, 2016

Investment advisory firm RiverFront Investment Group will pay $300,000 to settle charges that it failed to properly prepare clients for additional transaction costs beyond the “wrap fees” they expected to pay to cover the costs of bundled services.  In wrap fee programs, subadvisers typically use a sponsoring brokerage firm to execute their trades on behalf of clients and the costs of those trades are included in the annual wrap fee that each client pays.  An SEC investigation found that RiverFront disclosed to investors in ADV forms that client trades were typically executed through the sponsoring broker so the wrap fee would cover the transaction costs.  But RiverFront actually used brokers besides the wrap program sponsor to execute the majority of its wrap program trading, resulting in additional costs to clients for those transactions.  While RiverFront did disclose that some “trading away” from the sponsoring broker could occur, the firm inaccurately described the frequency, rendering its disclosures materially misleading.  SEC

Tagged in: Misrepresentations, Securities Fraud,