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March 14 — Three affiliate funds of American International Group Inc. agreed March 14 to pay $9.5 million to settle SEC allegations that they directed investors to higher-fee share classes in order to pocket more money.
Royal Alliance Associates Inc., SagePoint Financial Inc. and FSC Securities Corp. didn't admit or deny the Securities and Exchange Commission's claims. The three firms collected roughly $2 million in improper fees, the SEC said.
The settlement comes on the heels of AIG's announcement that it would spin off its brokerage business, with looming increases in compliance costs under a Labor Department rule that is set to impose a fiduciary standard on broker-dealers .
The respondent firms put client money into share classes that had marketing and distribution costs, known as 12b-1 fees, even though those clients were eligible for lower-fee investments, the SEC said. The entities didn't tell investors that they had their own incentives to put clients in the higher-fee vehicles, the agency claimed.
“Investment advisers must be vigilant about conflicts of interest when selecting mutual fund share classes because the choice may improperly benefit them at the expense of their clients,” Marshall Sprung, co-chief of the Asset Management Unit in the SEC's Enforcement Division, said in a news release.
The firms also failed to monitor accounts for inactivity, the agency alleged.
The respondents are represented by Morgan, Lewis & Bockius LLP in New York.
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For the settlement, visit https://www.sec.gov/litigation/admin/2016/34-77362.pdf
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