Berthel Fisher & Co. Sanctioned for Mutual Fund Overcharges
According to an administrative order on September 17, the Securities and Exchange Commission announced that Berthel Fisher & Company Financial Services, an Iowa-based dually registered broker/dealer and investment advisor, reportedly settled charges over claims it failed to disclose conflicts concerning recommendations of certain mutual fund share classes that included 12b-1 fees. The firm was censured and fined $235,000 plus more than $150,000 in disgorgement and pre judgment interest.
Beginning in January 2014, registered representatives at Berthel Fisher allegedly received 12b-1 fees from mutual fund share classes it recommended or purchased for clients, even when more affordable share classes from the same mutual funds were available, according to the order. The firm also purportedly failed to disclose the inherent conflicts. By April 2018, the firm began crediting the 12b-1 fees raised from recommending certain purchases to advisory client accounts on a going-forward basis, according to the SEC.
Mutual funds typically offer different kinds of share classes with similar objectives, but may differ in fee structures. This may lead to situations where advisors recommend a particular share class with elevated 12b-1 fees that would lower returns for the investor but increase profits for the advisor or broker selling the product.
The SEC complaint also allegedly noted that Berthel Fisher failed to disclose revenue-sharing payments from its cleaning brokers based on the amount of client assets that had been invested in certain cash sweep accounts. These payments reportedly “created an incentive” for the firm to recommend its advisory clients buy or hold share classes that paid 12b-1 fees over other share classes of the same mutual funds, according to the order.
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