The Securities and Exchange Commission today charged the investment services subsidiary of SunTrust Banks with collecting more than $1.1 million in avoidable fees from clients by improperly recommending more expensive share classes of various mutual funds when cheaper shares of the same funds were available.
SunTrust Investment Services has agreed to pay a penalty of more than $1.1 million to settle the charges. SunTrust separately began refunding the overcharged fees plus interest to affected clients after the SEC started its investigation. SEC examiners cited the practice during a compliance review of the firm in mid-2015. More than 4,500 accounts were affected.
According to the SEC’s order, the Atlanta-based firm breached its fiduciary duty to act in clients’ best interests by recommending and purchasing costlier mutual fund share classes that charge a type of marketing and distribution fee known as 12b-1 fees. Investors were not informed that they were eligible for less costly share class options that did not charge 12b-1 fees. The avoidable fees flowed back to SunTrust in the form of higher commissions from the funds.
“SunTrust made self-serving investment recommendations to the detriment of everyday investors who rely on mutual funds to secure their financial futures,” said Aaron W. Lipson, Associate Regional Director for Enforcement in the SEC’s Atlanta office. “The story has a happy ending for customers with the extra fees back in their accounts, and an obvious lesson for investment advisory representatives that you must always recommend the best deal for your clients, not yourselves.”
The SEC’s order finds that SunTrust violated Sections 206(2), 206(4) and 207 of the Investment Advisers Act of 1940 and Rule 206(4)-7. Without admitting or denying the findings, SunTrust agreed to pay the penalty totaling $1,148,071.77 as well as disgorgement plus interest on any leftover amount of the avoidable 12b-1 fees that are being refunded to clients. The firm also agreed to be censured.
The SEC’s investigation was conducted by Brian M. Basinger and supervised by Mr. Lipson and Stephen E. Donahue in the Atlanta office with support from the Division of Economic Risk and Analysis. The SEC examination that led to the investigation was conducted by Vincent H. Catrini and Samra Fleschner of the Atlanta office.