The U.S. Securities and Exchange Commission (SEC) charged a Nebraska investment advisory firm for putting clients into the pricier version of mutual funds when cheaper versions were available.
The SEC said Wednesday that Manarin Investment Counsel Ltd. and its owner, Roland Manarin, agreed to pay more than US$1 million to settle the commission’s charges. Without admitting or denying the SEC’s findings, Manarin and his brokerage firm agreed to pay disgorgement of US$685,006, prejudgment interest of US$267,741, and a US$100,000 penalty, along with consenting to censures and cease-and-desist orders.
The regulator says that its investigation found that they violated their obligation to seek ‘best execution’ by consistently selecting higher cost mutual fund shares for the three fund clients even though cheaper shares in the same funds were available.
Specifically, the SEC says that the three clients were sold class A funds when they were eligible for lower-cost institutional funds; which meant they paid almost US$700,000 in unnecessary trailer fees. As a result, it found that Manarin and his firm violated their fiduciary duty to clients, among other violations.
“Investment advisers must fulfill their fiduciary duty of best execution when selecting mutual fund shares for their clients,” said Marshall Sprung, co-chief of the SEC enforcement division’s asset management unit.
“Manarin and his firm breached that duty by choosing more expensive shares that would pay higher fees to an affiliate when their clients were eligible to own lower-cost shares in the very same mutual funds.”