What You Need to Know
- The firm, a unit of Atria Wealth Solutions, received revenue-sharing payments on certain mutual fund share classes.
- It recommended these share classes when others that were a better value for clients were available, the SEC says.
- Cadaret Grant has started taking remedial steps.
The Securities and Exchange Commission on Monday censured Cadaret Grant, the broker-dealer and RIA, and ordered it to pay $6 million, saying the firm failed to diclose conflicts of interest around revenue-sharing payments it received for selling certain mutual fund shares.
The Atria Wealth Solutions subsidiary, without admitting or denying the SEC’s findings, consented to the commission’s order, which also demands that Cadaret Grant cease and desist alleged violations of the Securities and Exchange Act of 1934 and the Investment Advisers Act of 1940.
The SEC, citing several violations, found that Cadaret Grant breached its fiduciary duty arising from its receipt of third-party compensation based on advisory client investments.
“Cadaret Grant failed to provide full and fair disclosure regarding conflicts of interest” associated with its receipt of revenue-sharing payments from Cadaret Grant’s unaffiliated clearing broker as a result of advisory clients’ investments in certain no-transaction fee, or NTF, mutual fund share classes from at least January 2017 until January 2020, the order states.
The firm also failed to fully disclose conflicts of interest related to revenue-sharing payments from its clearing broker as a result of sweeping cash into certain money market mutual funds from at least January 2017 until March 2022, and markups on the clearing broker’s fees for certain advisory clients’ transaction fees from at least January 2017 until June 2020, the order says.
(In June 2020, Cadaret Grant revised its brochure to add disclosures regarding transaction fee markups and related conflicts of interest, and before the commission’s investigation, Cadaret Grant reimbursed advisory clients $607,522 in transaction fee markups, the order says.)
Cadaret Grant also caused certain advisory clients to invest in particular share classes of NTF mutual funds when share classes of the same funds that offered a more favorable value to clients were available, the SEC found, referring to the violation as failure to seek best execution.
The firm in addition failed to analyze whether the particular mutual fund share class and money market fund it recommended was in the best interests of its advisory clients, according to the agency.
Moreover, Cadaret Grant failed to adopt and implement written compliance policies and procedures reasonably designed to prevent Advisers Act violations in connection with its practices regarding mutual fund share class and money market fund selection, transaction fee markups and seeking best execution, the order states.