On September 14, 2017, the Securities and Exchange Commission announced that it had charged the investment services subsidiary of SunTrust Banks with collecting more than $1.1 million in avoidable fees from clients by improperly recommending more expensive share classes of various mutual funds when cheaper shares of the same funds were available.
SunTrust Investment Services agreed to pay a penalty of more than $1.1 million to settle the charges. SunTrust separately began refunding the overcharged fees plus interest to affected clients after the SEC started its investigation. SEC examiners cited the practice during a compliance review of the firm in mid-2015. More than 4,500 accounts were affected.
According to the SEC’s order, the Atlanta-based firm breached its fiduciary duty to act in its clients’ best interests by recommending and purchasing costlier mutual fund share classes that charge a type of marketing and distribution fee known as 12b-1 fees. Investors were not informed that they were eligible for less costly share class options that did not charge 12b-1 fees. The avoidable fees flowed back to SunTrust in the form of higher commissions from the funds.
The SEC’s order found that SunTrust violated Sections 206(2), 206(4) and 207 of the Investment Advisers Act of 1940 and Rule 206(4)-7. Without admitting or denying the findings, SunTrust agreed to pay the penalty totaling $1,148,071.77 as well as disgorgement plus interest on any leftover amount of the avoidable 12b-1 fees that are being refunded to clients. The firm also agreed to be censured.