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Ameritas Advisory Services to pay $4.6M to settle SEC charges

Lincoln, Neb.-based Ameritas Advisory Services, the registered investment advisor that was spun out of Ameritas Investment Co. in October 2021, will pay investors $4.6 million after settling charges with the Securities and Exchange Commission that it bought certain mutual funds. And share classes were recommended. customers when more affordable options were available.

According to the order of the commissionOf course, Ameritas “breached its fiduciary duty to advisory customers” when it failed to disclose instances of third-party compensation customers. This happened when RIA was part of the dual-registered Ameritas Investment Company, formed in 1998.

In 2014, the firm made an arrangement with its clearing broker that, according to the SEC, the latter would often share revenue from investments in particular mutual fund share classes with Emeritas. Mutual funds often offer a variety of share classes with similar investment objectives but different fee structures, meaning that clients are usually (though not always) better off investing in share classes without fees.

While Ameritas would benefit from shared revenue from these recommendations, according to the SEC, customers were indirectly paying fees included in the expense ratio of these share classes. Therefore, because of this arrangement, Ameritas had an incentive to recommend mutual funds and share classes that would result in the firm receiving additional revenue from the clearing broker.

The clearing broker also created a “no-transaction” fee program that included certain mutual fund shares, although the broker caused those funds to charge higher recurring fees than those not included in the program, according to the commission; This resulted in a higher expense ratio for the funds involved. But around February 2014, the two agreed that the broker would share some recurring fees from investments made in shares in the program according to the commission.

The order said, “The percentage shared by the clearing broker has increased with the level of assets of brokerage clients of AIC, which includes assets of advisory clients who have invested in those mutual funds (without transaction fees). ” “Low-cost share classes of similar funds were also generally available for which the clearing broker would have paid no more or less revenue share.”

That December, Ameritas decided it would stop sharing revenue in this way and update its Form ADV, but did not take “reasonable steps” to ensure that the broker stopped making payments. SEC said. Ameritas eventually stopped receiving such payments in March 2021 after discovering that the broker had continued to pay them.

Additionally, Ameritas will often recommend certain sweep accounts to hold uninvested cash, and the clearing broker offered dual registrants a revenue sharing arrangement on some of these type of share classes, but not others, according to the commission.

Overall, the commission claimed that Ameritas failed to seek the best performance for its clients by investing in certain share classes of mutual funds and money market funds when the same fund’s share classes (with lower fees) were available. , and knocked the firm to adopt written compliance procedures to prevent such violations. According to spokesman Derek Rement, Ameritas had worked with the SEC to reach a “mutually agreed” settlement.

“AAS is committed to regulatory compliance and will continue to maintain the integrity of its services,” he said.

In the order, Ameritas verified that the Commission had “reviewed and corrected all disclosure documents as needed” related to the issues it found, and made efforts to address the broader issues. In early March 2018, in addition to discontinuing revenue-sharing payments from no-transaction-fee programs, Ameritas began waiving revenue-sharing amounts for clients from investments in certain funds.

The firm did not accept nor deny the essence of the order, but agreed to a cease-and-desist order as well as a total of more than $3.4 million, prejudice interest of $543,390 and civil penalties totaling $750,000. Of.

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