Pruco Securities, the broker/dealer and corporate RIA arm of Prudential, has settled with the Securities and Exchange Commission over alleged violations in the firm’s wrap fee programs. The firm agreed to pay $18 million in disgorgement, interest and penalties, as well as a censure and cease-and-desist.
In an administrative order, the SEC claimed Pruco failed to perform ongoing monitoring to determine whether the “wrap fee” program (in which clients paid a singular asset-based fee for investment advice, brokerage services and trade execution) was still suitable for clients.
The firm also allegedly charged certain fees in client accounts, contrary to disclosures.
The regulator also claims that from January 2014 to March 2016, the firm sold certain mutual funds and fund share classes that paid 12b-1 fees without properly disclosing the conflict. Some classes charge 12b-1 fees that cover some costs that are deducted from the mutual fund’s assets, paid to the fund’s distributor, and typically remitted to the broker/dealer who recommended and conducted the investment. The firm made more than $7 million in 12b-1 fees during that period, the SEC said.
Pruco also had a revenue-sharing arrangement with its clearing firm, the SEC claimed, and it did not disclose that to clients. That arrangement allowed Pruco to avoid paying certain transaction fees for client purchases of mutual funds.
The SEC also said Pruco failed to disclose it was receiving revenue share payments from the clearing firm for the sales of certain bank sweep products. The firm also failed to comply with best execution rules by recommending mutual fund share classes over share classes of the same funds with better value or performance, the SEC said.
“We take this matter very seriously and have fully cooperated with the SEC throughout this process,” said a Pruco spokesman, in a statement. “In line with broader industry-wide efforts, we have reimbursed impacted accounts and are pleased to have resolved this matter.”
