Commonwealth Financial Network Ordered to Pay $93.3 Million Over Conflicts of Interest

Posted on April 30th, 2024 at 1:35 PM
Commonwealth Financial Network Ordered to Pay $93.3 Million Over Conflicts of Interest

From the desk of Jim Eccleston at Eccleston Law 

Commonwealth Financial Network has been directed to pay $93.3 million due to its failure to disclose conflicts of interest linked to a revenue-sharing program with a Fidelity Investments unit. The sanctions include disgorgement of over $65 million, prejudgment interest of $21 million, and a civil penalty of $6.5 million, mandated by the Securities and Exchange Commission (SEC) within 30 days.

According to AdvisorHub, the SEC initiated legal action against Commonwealth in 2019, alleging breaches of fiduciary duty by concealing from clients, between 2014 and 2018, payments amounting to $136 million from Fidelity’s National Financial Services for selling funds. The court concurred with the SEC's assertion that those payments presented a significant customer conflict, as clients were placed into revenue-sharing funds without being informed of less expensive alternatives.

In its defense, Commonwealth argued that revenue-sharing did not create conflicts because its advisors did not receive any portion of the payments from NFS. Notably, top holdings by Commonwealth Advisory customers included fund families like Vanguard and Dimensional Funds, which did not offer revenue-sharing payments.

AdvisorHub further reports that this ruling from the SEC comes amidst broader regulatory scrutiny on disclosure violations related to revenue sharing and mutual fund share class issues.

 

Eccleston Law LLC represents investors and financial advisors nationwide in securities, employment, transition, regulatory, and disciplinary matters.

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