SunTrust Banks agreed to pay a $1.1 million penalty after a federal agency accused the Atlanta-based bank of steering investors to more costly mutual funds and pocketing part of the money.
The federal Securities and Exchange Commission said SunTrust betrayed its clients by selling them mutual fund shares that charge extra fees, called 12b-1 fees, when cheaper share classes were available for the same mutual funds that didn't charge the fees.
The bank then collected bigger commissions that were paid from those fees, the SEC said.
The agency’s Atlanta regional office said it discovered the practice, which affected more than 4,500 accounts, during a 2015 examination of the bank’s operations.
“SunTrust made self-serving investment recommendations to the detriment of everyday investors who rely on mutual funds to secure their financial futures,” said Aaron W. Lipson, with the SEC’s Atlanta office.
SunTrust didn’t admit or deny the SEC’s charges. The agency said SunTrust agreed to pay a $1.1 million penalty, and also refunded the fees to clients after the SEC began its investigation.
A SunTrust spokesperson said the bank took corrective actions but believes its disclosures were adequate.
“We addressed the matter on a prospective basis with remedial actions starting in the summer of 2015,” said Sue Mallino, with SunTrust. “Although we believe that our disclosures were in accordance with industry standards, we cooperated fully with the SEC and are pleased to have settled this matter.”
The alleged practice breached SunTrust's so-called fiduciary duty to its clients to act in their best interests, the SEC said. Such actions could violate the 77-year-old Investment Advisers Act, which requires money managers registered with the SEC to act in clients' best interests.
That arcane term has been getting more notice lately after President Donald Trump’s administration sought to reverse his predecessor’s efforts to expand similar duties to people who give advice on investor’s retirement savings but who are not covered by the 1940 law.
The U.S. Department of Labor rolled out a similar fiduciary rule that was to take effect this year. It requires brokers, insurance agents and other investment advisers to act in clients’ best interests when selling or recommending investments in retirement accounts such as a 401(k).
Unlike money managers, brokers and insurance agents are not covered by the 1940 law, and only have to meet a looser standard that they recommend “appropriate” investments. That leaves room to recommend more costly options that reward them with higher commissions when cheaper or better alternatives may be available.
Soon after taking office, Trump issued an executive order aimed at delaying or repealing the Department of Labor’s new fiduciary rule, which was to go into force in April.
The Labor Department has since delayed the rule from going into effect and last month asked a court to postpone it until July 2019.
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