LPL Participates in SEC Share Class Initiative and Related Settlement

March 11, 2019

The U.S. Securities and Exchange Commission (SEC) has found that financial service companies that offer advisory services were not adequately disclosing 12b-1 fees and mutual fund share classes to investors. A 12b-1 fee is commonly charged by mutual funds, and this fee is used to pay broker-dealer firms for a fund’s distribution and shareholder services.

LPL got ahead of this issue by enhancing its disclosures around share classes and 12b-1 fees for its Strategic Asset Management (SAM) program in August of 2014, then moved to a single share class in 2016 where 12b-1 fees were no longer retained by the firm for its SAM program. That said, the SEC asked investment advisory firms like LPL to conduct a historical review back to 2014, and refund to investors 12b-1 fees when, in the SEC’s view, the firm did not fully disclose conflicts of interests about these fees.

As part of the initiative, the SEC issued settled orders today against LPL Financial and over 70 other advisory firms. The SEC found that the firms violated the Investment Advisers Act by not adequately disclosing conflicts of interest related to the receipt of mutual fund 12b-1 fees and the selection of certain share classes.

As part of the settled order, LPL announced today that it will return approximately $8.1 million to investors who were charged 12b-1 fees, primarily in its SAM program from January – August of 2014, prior to when the firm implemented its enhanced disclosures. LPL will also return an additional $1.2 million in interest.

“We proactively enhanced our disclosures related to mutual fund transactions in 2014 before moving to a single share class on our Strategic Asset Management platform in 2016,” said Michelle Oroschakoff, managing director and chief Legal officer, LPL. “As a result of these efforts, the vast majority of the dollars we will return to investors covers an eight‐month period from five years ago. LPL continually looks for ways to enhance disclosures as the industry and regulatory environment changes.”

By volunteering to proactively work with the SEC to resolve this matter, LPL will not be subject to a fine.