SEC settles action with investment firm for $300,000

By Deana Carpenter | Aug 4, 2016

PHILADELPHIA — The Securities Exchange Commission (SEC) on July 14 settled an action against RiverFront Investment Group of Richmond, Va.

The company agreed to be censured and pay a $300,000 penalty after the firm allegedly failed to appropriately equip its clients for costs exceeding its “wrap fee.”

RiverFront’s website describes the company as a “global asset manager utilizing a dynamic investment approach with uncommon transparency.”

The wrap fee program is one in which an adviser uses another brokerage firm to conduct its trades on the behalf of its clients. The costs associated with those trades are included in an annual fee or wrap fee that is paid by the client.

The SEC alleged that RiverFront disclosed to its investors that trades conducted for clients were executed by sponsoring broker firms so that the wrap fee would cover the transaction costs.

“RiverFront did not prepare its clients for the amount of transaction costs that they would pay to non-designated broker-dealers that were not covered by the wrap fee,” Sharon Binger, director of the SEC’s Philadelphia office, told the Pennsylvania Record.

The SEC’s National Exam Program includes wrap fee programs among the priorities it examines annually. The SEC has particular interest in assessing whether advisers are fulfilling their contractual obligations to clients and managing disclosures, conflicts of interest, best execution and trading away from the sponsor.

In its settlement with the SEC, RiverFront did not admit or deny any of the findings. The SEC in its order, found that RiverFront violated Sections 207 and 204 of the Investment Advisers Act of 1940 and Rule 204-1 (a).

The Investment Advisers Act monitors and regulates activities of investment advisers and firms and is the main source of regulation of such advisers by the SEC.

“RiverFront used brokers besides those designated by the wrap program sponsor to execute the majority of its wrap program trading while misleading clients to believe this happened less frequently,” Binger said.

In addition to paying the $300,000 penalty and being censured, RiverFront must also post the volume of trades by market value not executed from sponsors as well as the associated transaction costs passed on to clients on its website.

“Our examiners have been taking a close look at wrap fee programs to make sure advisors are fulfilling their fiduciary and contractual obligations to clients,” Binger said.

The SEC’s investigation of RiverFront was conducted by representatives from the Philadelphia office including Matthew S. Raalf and Kelly L Gibson. They were supervised by G. Jeffrey Boujoukos. The prior examination that led to the investigation was conducted by Ly T. Nguyen, Kristy L. Moore, Kelli P. Byrne, Arthur Cajulis, Matthew L. Guthier and Brian Carroll of the Philadelphia office. They were supervised by Steven R. Dittert.

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