Pruco Securities to pay $18 Million for Overcharges

Pruco Securities to pay $18 Million for Overcharges

The SEC Sanctions Pruco Securities for Alleged Breach of Fiduciary Duty

The Securities and Exchange Commission this week reportedly charged Pruco Securities, the broker/dealer and RIA owned by Prudential, with 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.

According to the Cease and Desist Order, the regulator alleged Pruco failed to perform ongoing monitoring to determine whether the “wrap fee” program was still suitable for clients.

“Wrap fee” refers to a program in which clients pay a singular asset-based fee for investment advice, brokerage services and trade execution.

Pruco also allegedly charged certain fees in client accounts, contrary to disclosures.

According to the SEC, from January 2014 to March 2016, the firm allegedly sold certain mutual funds and fund share classes that paid 12b-1 fees without properly disclosing the conflict. The firm made more than $7 million in 12b-1 fees during that period, the SEC said.

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. 

Pruco also apparently did not disclose the revenue-sharing arrangement it had with its clearing firm, or its clients, according to the order. That arrangement allowed Pruco to avoid paying certain transaction fees for client purchases of mutual funds.

The regulator further alleged that Pruco failed to disclose it was receiving revenue share payments from the clearing firm for the sales of certain bank sweep products and it 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.

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