The US Securities and Exchange Commission has filed civil charges against Ameriprise Financial Services (AMP). The regulator is accusing the brokerage firm and investment adviser of recommending to retail retirement account customers that they purchase mutual fund shares that charged higher fees. Ameriprise purportedly failed to employ sales charge waivers when applicable.
The Commission’s order contends that the broker-dealer neglected to determine when certain retirement account customers qualified for mutual fund share classes that were not as costly.
Instead, the firm would recommend and sell the more costly mutual fund shares even when the less pricey options were available. Ameriprise is accused of not letting these customers know that the firm would make more from the costly mutual fund shares even as their overall investment returns were harmed.
The SEC said that about 1,971 customer accounts paid nearly $1.8M in up-front sales fees that were not warranted, costlier ongoing fees, “contingent deferred sales charges,” and other expenses because of the way that Ameriprise handled the recommendation and sale of mutual funds to retirement account clients.
The firm is cooperating with the regulator and has paid back customers that were affected with interest. Retirement account customers eligible for the less expensive mutual fund share classes have been moved to those classes free of charge.
Despite settling the SEC charges, Ameriprise is not denying or admitting to the regulator’s findings. It will, however, pay a $230K penalty.
Report Finds that Fidelity Placed Six Million Freedom Fund Retirement Customers at Higher Risk
According to Reuters, despite the fact that mutual funds in Fidelity’s Freedom Funds, which is its flagship retirement fund, have done better than the majority of its competitors, client funds continue to exit the retirement plan in the wake of sponsors deciding to move employees’ savings to other funds in the target-date fund arena.
Morningstar reports that the firm has experienced over $16B in net withdrawals in the last four years, which is when Fidelity changed up its investment strategies related to said funds.
Some 6.2M US citizens have invested approximately $224B in the Freedom Funds. However, Morningstar notes, the funds have seen a 21% drop in market share of their overall target-date fund assets.
During this time, Fidelity enhanced performance by increasing risk, upping the funds’ stock exposure—including stocks from emerging markets that can be “volatile”—and no longer staying with pre-set allocations for assets in target-date funds.
The firm’s portfolio managers are also now engaging in time market shifts. Such moves increase investors’ exposure to larger financial losses in the event that the riskier assets were to plunge in value.
Just this January, Morningstar reports, the Freedom 2020 Fund saw a 6% drop in less than two weeks, doing worse than over 80% of competitors. This Fidelity fund is for investors slated to retire in two years. Fidelity’s 2040 fund, for customers that are mid-career and saving for retirement, saw a 9% drop during this same time.
Retirement plan sponsors and others that have withdrawn money from the Freedom Funds explained to Reuters that the reason for the move is underperformance, growing risk, and “frequent strategy changes.” Among the plan sponsors to leave these funds: University of Virginia Physicians Group Retirement Plan, Santa Clara University, Duke University, Dartmouth College, and Central Florida University. Last year, they transferred their funds to Vanguard-offered target-date funds.
Shepherd Smith Edwards and Kantas, LTD LLP represents investors that have suffered losses because of securities fraud. One of our investment adviser fraud attorneys or broker fraud lawyers can offer you a free, no-obligation case consultation to help you explore your legal options.
The SEC Order in the Ameriprise Case (PDF)
More Blog Posts from SSEK Law Firm:
Ex-Wells Fargo Broker Barred for Alleged $180K Elder Financial Fraud, Stockbroker Fraud Blog, February 26, 2018
Multi-Million Dollar Investment Adviser Fraud Cases Target Widows, Older Investors, and Other Retail Investors, Stockbroker Fraud Blog, December 28, 2017