Commonwealth Financial Network Ordered To Pay $93.3M Over Mutual Fund Revenue Sharing
SEC Alleged Breach of Fiduciary Duty When Firm Recommended Mutual Fund Shares That Paid It Fees
Earlier this year, Commonwealth Financial Network was ordered to pay $93.3M in a breach of fiduciary duty lawsuit filed by the US Securities and Exchange Commission (SEC) in 2019. The regulator claimed that the independent broker-dealer and investment adviser did not disclose material conflicts of interest involving revenue-sharing agreements with clearing firm National Financial Services.
As a result of these arrangements, contends the SEC, Commonwealth was paid up to $136M for selling funds that paid National Financial Services to be on its platform.
In its ruling, the US District Court in Boston agreed with the regulator that the payments were a material customer conflict and that clients were placed into certain revenue-sharing funds without being made aware that there were less expensive options available. Judge Indira Talwani wrote that Commonwealth knew these lower-cost shares were available and it was making money from keeping clients in the more expensive mutual fund share classes.
The SEC accused Commonwealth of breaching its fiduciary duty when it didn’t tell clients that there were less costly mutual fund share classes they could have invested in and the District Court agreed.
Commonwealth was found liable for $65.6M of disgorgement, $21.2M of interest, and $6.5M in penalties. The firm’s CEO said it was disappointed in the ruling.
Why Should You Explore Your Legal Options If You Suspect Mutual Fund Losses Involving Financial Advisor Negligence?
Mutual fund shares come in different classes and some will charge more fees than others. Your financial advisor is supposed to apprise you of the different share classes available to you, especially when there are less costly options. They are also supposed to disclose any conflicts of interest, such as when recommending one mutual fund share class over another benefits them and not you.
Another type of practice that can be problematic is mutual fund switching. Mutual funds are meant to be long-term investments. However, there are brokers that will switch a customer from one mutual fund to another with no clear benefits for the purpose of generating commissions from the transactions. The fees can add up, which may cost investors.
Mutual fund fraud can also occur when a financial advisor purposely recommends that a customer invest a certain amount just under what is called a mutual fund breakpoint. The latter is supposed to offer discounts and brokers are supposed to let you know of this availability rather than prevent you from taking advantage.
Representing Mutual Fund Fraud Investors
SSEK Mutual Fund Abuse Attorney (investorlawyers.com) represent investors who have suffered losses because their financial advisor engaged in excessive mutual fund switching, failed to apprise an investor of less costly share class options, or engaged in some other type of mutual fund fraud.
It can be hard for an investor when they have been a victim of broker misconduct or negligence involving mutual funds, which is why you need to speak with seasoned mutual fund fraud attorneys. We offer free, no-obligation case consultations to help you explore your legal options and can help you determine whether you have grounds for a legal claim against your broker and/or their firm.
Over the decades, our Mutual Fund Abuse Attorney team has represented thousands of investors, helping more than 90% of them to obtain full or partial financial recovery in arbitration, mediation, or litigation.
How To Schedule Your First Consultation Our Mutual Fund Abuse Practices Attorneys
Call (800) 259-9010 or fill out this contact form.