A New York-based broker-dealer is being sanctioned in a settlement with the U.S. Securities and Exchange Commission (SEC) for making mutual fund recommendations and providing clients with investment plans that didn’t adhere to rules requiring firms to put clients’ interest first.
The SEC settled charges with the firm, David Lerner Associates, Inc. (DLA), for failing to comply with the conduct rules known as Regulation Best Interest (RegBI) in two areas.
According to the SEC’s order, between June 30, 2020 and Sept. 15, 2024, the firm’s reps violated RegBI requirements when they recommended to clients that they sell front-load mutual funds that had been held for less than a year, and that they buy new front-load funds, which generated approximately US$230,000 in upfront sales charges.
The SEC alleged that, in making these recommendations, the reps didn’t adequately consider investors’ costs, or the option of switching funds within the same family to avoid new sales charges.
Additionally, the SEC also alleged that from 2020 through April 2026, the firm didn’t have policies and procedures to ensure that its “customized investment plans” for retail investors complied with the provisions of RegBI.
The firm agreed to settle the case, without admitting the regulator’s findings.
Under the settlement, it agreed to disgorge US$126,548.14 — the firm’s share of the upfront sales commissions, which were split 45% (reps) to 55% (firm) with the reps that made the recommendations. It also agreed to a civil penalty of US$60,000, along with prejudgment interest.
Last month, the firm revised its written policies and procedures for providing customized investment plans to ensure they comply with RegBI, the SEC noted.