Ameriprise Financial Settles Charges That It Overcharged Retirement Account Customers for Mutual Fund Shares
On February 28, 2018, the Securities and Exchange Commission announced that Minnesota-based Ameriprise Financial Services, Inc., a broker-dealer and investment adviser, has agreed to settle charges for recommending and selling higher-fee mutual fund shares to retail retirement account customers and for failing to provide sales charge waivers.
According to the SEC’s Ameriprise Financial Services Order, Ameriprise Financial Services, Inc. disadvantaged certain retirement account customers by failing to ascertain their eligibility for less expensive mutual fund share classes. Ameriprise Financial recommended and sold these customers more expensive mutual fund share classes when less expensive share classes were available. Ameriprise Financial also failed to disclose that it would receive greater compensation from the purchases and that the purchases would negatively impact the overall return on the customers’ investments.
According to the SEC, approximately 1,791 customer accounts paid a total of $1,778,592.31 in unnecessary up-front sales charges, contingent deferred sales charges, and higher ongoing fees and expenses as a result of the practices of Ameriprise Financial. Further, Ameriprise Financial cooperated with the SEC and voluntarily identified the affected accounts, issued payments including interest to the affected customers, and converted eligible customers to the mutual fund share class with the lowest expenses for which they are eligible, at no cost.
According to the SEC’s Order:
From at least January 2010 through June 2015 . . ., Ameriprise disadvantaged certain retirement plan customers (“Eligible Customers”) by failing to ascertain that they were eligible for a less expensive share class, and recommending and selling them more expensive share classes in certain open-end registered investment companies (“mutual funds”) when less expensive share classes were offered to these Eligible Customers by Ameriprise on its platform. Ameriprise did so without disclosing that it would receive greater compensation from the Eligible Customers’ purchases of the more expensive share classes. Eligible Customers did not have sufficient information to understand that Ameriprise had a conflict of interest resulting from compensation it received for selling the more expensive share classes. Specifically, Ameriprise recommended and sold these Eligible Customers Class A shares with an up-front sales charge or Class B or Class C shares with a back-end contingent deferred sales charge (“CDSC”) (a deferred sales charge the purchaser pays if the purchaser sells the shares during a specified time period following the purchase) and higher ongoing fees and expenses, when these Eligible Customers were eligible to purchase load-waived Class A shares. Ameriprise omitted material information concerning its compensation when it recommended the more expensive share classes to these Eligible Customers. Because Ameriprise did not ascertain these customers’ eligibility for load-waived A shares, it did not disclose to Eligible Customers that the purchase of the more expensive share classes would negatively impact their overall return, in light of the different fee structures for the different fund share classes. (Emphasis added)
The SEC’s order instituting a settled administrative and cease-and-desist proceeding finds that Ameriprise violated Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933, and without admitting or denying the findings, Ameriprise Financial consented to a cease-and-desist order, a censure, and a penalty of $230,000.