The three units under the American International Group are asked to pay $9.5 million in order to settle allegations from its clients. The units were alleged of steering its patrons into expensive mutual fund share classes in order to collect more money.
The units that were involved are Royal Alliance Associates, FSC securities Corp and Sagepoint Financial. The three collected up to $2 million in extra fees. The US SEC said that the practice is a conflict of interest and clients were not aware of it, Reuters reported.
According to The Wall Street Journal, the firms placed their clients in their adviser-managed portfolios program in share classes that were able to get fees for marketing and distribution purposes. These charges should not be there since their clients were all eligible to buy shares in fund classes.
The company, however, is pleased with the settlement case, promisingit will cooperate with the SEC's investigation and work to enhance the process which is the issue at present. As reported by Forbes, CEO Peter Hancock said they are requiring all financial advisors of all lines to prioritize the best interest of their clients.
The SEC has been probing conflict of interest as well as disclosures related to selecting mutual fund share classes. They found out that the three AIG units have breached their responsibilities as fiduciaries which is a critical requirement of the agency. These units are obliged to let their clients know of the conflicts regarding the fees that will accumulate through these fund shares.
The SEC added that the AIG was not able to monitor the accounts for possible reverse churning. An exercise in which firm trades are infrequent on the accounts that they manage. This is a big obligation to act with regards to the client's best interest. The penalty of the AIG consists of $2 million that will be returned to investors and a $7.5 million fine.
