When A Broker-Dealer’s Conflicts of Interest Costs Investors Money. Cabaret, Grant & Co. To Pay Over $6M For Purportedly Profiting From Recommending Certain Mutual Funds and Money Market Funds Over Others
The US Securities and Exchange Commission (SEC) is ordering investment advisory and brokerage firm Cadaret, Grant & Co. to pay over $6M for alleged conflicts of interest that allowed it to profit when clients would invest in certain mutual funds and money market funds. According to the regulator, between January 2017 and March 2022, the Atria subsidiary committed breaches of fiduciary duty and violated key regulations under the Investment Advisers Act of 1940.
The SEC contends that Cadaret Grant received revenue-sharing payments from an unaffiliated clearing broker whenever advisory clients made investments in certain money market funds and mutual funds. The Commission said that, as a result, Cadaret Grant clients ended up indirectly paying fees when they were part of the expense ratio as investors of these mutual fund share classes.
The revenue-sharing deals purportedly incentivized the firm to recommend the mutual funds and mutual fund share classes that offered Cadaret Grant this financial incentive as opposed to those that did not. The regulator said that this was a conflict of interest of which clients were not made fully aware.
The Commission is also accusing the firm of breach of fiduciary duty, failure to conduct the necessary due diligence to make sure these mutual fund and money market fund recommendations were in a client’s best interests, and neglecting to provide fair and total disclosure of all material facts regarding its practices for choosing the mutual fund share classes.
Also, Cadaret Grant received revenue-sharing payments when cash was swept into certain money market mutual funds. This conflict of interest, including the markups that resulted, was not disclosed until June 2020. Clients have since been reimbursed more than $607K.
When Excessive Mutual Fund Fees Lead To Investor Losses
Sales commissions and additional fees can sometimes lead to serious losses for investors especially when these payments are excessive or inappropriate. They can also compel brokerage firms and investment advisers to make unsuitable investment recommendations that are not in clients’ best interests.
Unfortunately, excessive fees tied to mutual funds is not as unusual as one would like to think. For example, mutual fund switching, which may involve a financial advisor unnecessarily switching an investor from one mutual fund to another for the purpose of generating commissions, is a way that a mutual fund investor can lose money.
What Should You Do If You Have Sustained Losses From Unsuitable Mutual Fund Sales Practices?
Even if a regulator has fined a broker-dealer for financial advisor misconduct or negligence, it is important that you explore your legal options with a seasoned mutual fund loss law firm. Shepherd Smith Edwards and Kantas Financial Advisor Misconduct Lawyer Teams (investorlawyers.com) have been representing mutual fund investors for over 30 years.
Unsuitability, breach of fiduciary duty, excessive commissions, best interest violations and more can be grounds for suing a broker-dealer for damages. This is not the type of legal claim you want to pursue without a skilled securities attorney by your side.
Over the years, we have gone up against US broker-dealers, including large Wall Street firms, to help investors recoup the damages they are owed. Call our Financial Advisor Misconduct Lawyer team at (800) 259-9010 or contact us online.