On September 14, 2017, the SEC charged SunTrust Investment Services with receiving more than $1.1 million in client fees by improperly recommending costlier share classes of mutual funds when cheaper shares were available. The SEC alleged that SunTrust violated its fiduciary duty by promoting mutual fund share classes that charge 12b-1 fees without informing clients of their ability to purchase share class options that did not charge this additional fee. SunTrust profited from the 12b-1 fees through higher commissions paid by the funds. SunTrust began refunding the overcharged fees plus interest to the more than 4,500 accounts that were affected.
The SEC’s order charges that SunTrust breached Sections 206(2), 206(4) and 207 of the Investment Advisers Act of 1940. In accordance, SunTrust agreed to be censured and to pay a monetary penalty of $1,148,071 in addition to disgorgement plus interest on any of the amount leftover from the fees refunded to clients.
WHAT DOES THIS MEAN FOR ME?
Advisers have a fiduciary duty to provide investment advice in the best interest of clients without regard to the adviser’s interests. Failure to seek best execution when selecting among available mutual fund share classes is a breach of fiduciary duty that could potentially expose the adviser during an SEC exam.