The SEC Sanctions Voya Financial Advisors Inc. for Alleged Breach of Fiduciary Duty
Voya Financial Advisors, Inc., based in Des Moines, Iowa, is a dually registered investment adviser and broker-dealer with $15.9 billion under management.
On December 21, 2020, the Securities and Exchange Commission ordered Voya Financial Advisors to pay close to $23 million to settle charges that it breached its fiduciary duties by overcharging its advisory clients between January 2013 and December 2018. The violations were in connection with its mutual fund share class selection practices, sweep account revenue sharing, and its alternative investment selection practices.
According to the SEC, Voya recommended that clients purchase or hold mutual fund share classes that charged 12b-1 fees when lower-cost share classes of the same funds were available. The recurring fees typically range from 0.25 to 1.00 percent and are used to cover costs related to fund distribution and shareholder services.
The SEC also charged Voya with failing to disclose a revenue sharing arrangement it had with its unaffiliated clearing broker which paid Voya a portion of the revenue received from cash sweep products in which Voya invested advisory client assets. Voya reportedly did not disclose this practice or the related conflicts of interest, according to the regulator.
A sweep account holds uninvested cash until the investor or their adviser decides how to invest the money. The clearing broker reportedly provided Voya with a list of more than 130 money market funds as sweep account options for advisory clients.
The SEC said that the funds that paid Voya the most revenue sharing generally charged higher fees and returned lower investment yields to clients. The money market funds that paid no or lower revenue sharing to Voya generally charged lower fees and returned higher investment yields to clients.
According to the SEC, Voya’s account opening worksheet listed only two sweep account options, one for retirement accounts and one for non-retirement accounts, which paid Voya the highest revenue sharing. If clients wanted to choose a different option, they had to manually write the fund name from a list located later in the document.
Consequently, the firm recommended and invested more than 97 percent of advisory clients’ uninvested cash in two money market funds with the highest available rate of revenue sharing.
The SEC also alleged Voya caused certain advisory clients to invest in higher-cost illiquid alternative investment products through brokerage accounts that charged upfront commissions, when those same investments were available commission-free through fee-based advisory accounts.
The firm was reportedly ordered to pay approximately $11.6 million in disgorgement, $2.4 million in prejudgment interest, and a $9 million civil penalty.
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