The SEC has charged RiverFrontInvestment Group LLC with failure to properly prepare clients for transactioncosts that were in addition to the wrap fees being paid to cover the cost of multiplebundled services.
Sub-advisers typically use a sponsoring brokerage firm to executetrades on behalf of clients in wrap fee programs. The costs of the trades are includedin the annual wrap fee paid by clients.
The regulator found in an investigation that the investment advisoryfirm had disclosed to investors that client trades were typically executed throughthe sponsoring broker so the wrap fee would cover the transaction costs; however,it used brokers other than the wrap program sponsor to execute the majority of itswrap program trading, leading to additional costs for clients.
According to the SEC, RiverFront disclosed that some tradingaway from the sponsoring broker might take place but did not describe the frequencyaccurately, which caused its disclosures to be materially misleading.
RiverFront agreed to settle the SEC's charges without admittingor denying the findings. It also agreed to be censured and pay a penalty of $300,000.In addition, the company has to post the volume of trades by market value executedaway from sponsors and the associated transaction costs passed onto clients on itswebsite on a quarterly basis.