has settled charges brought by New Hampshire regulators
that its financial advisors arm paid advisors more to sell proprietary funds than those of other fund shops. The state had previously announced its investigation last February. The Minneapolis-based financial services conglomerate is in the process of spinning that business off to shareholders. The new firm will operate as Ameriprise Financial Advisors.
The firm paid $7.4 million to settle the charges brought by the New Hampshire Bureau of Securities Regulation
. That payment includes $5 million of fines and penalties, $3 million of restitution to harmed investors and $375,000 to reimburse the state for the expenses it incurred investigating the case.
One aspect of the settlement that should catch the attention of other fund advisors with their own distribution is New Hampshire investigators contention that AEFA's practice of using its own funds in model portfolios harms investors. Those funds also underperformed other similar mutual funds, according to regulators.
"New Hampshire investors were paying American Express financial advisors to evaluate their unique financial needs and design the best possible portfolios accordingly," said Jeff Spill, deputy director in charge of enforcement. "What we found instead was a pervasive effort within the company to sell cookie cutter plans heavily laden with American Express mutual funds, without disclosing to clients how this behavior financially benefited the company and its agents."
Jonas Cutler, lead counsel for the investigation and a staff attorney for the Bureau, said that the investigation was kicked off when state auditors found a consistent pattern of accounts "heavily laden" with AEFA funds. The auditors also found emails that pressured advisors to sell proprietary funds.
In response, the Bureau investigated all financial plans sold from January 1999 to March 2003.
The investigators found that the models had been developed by an advisor in the American Express' Bedford office in May 2002 and that those models used only American Express funds. According to the Bureau, the models were developed without oversight and without due diliegence or adequate testing or tracking and without regard to the best interests of the client.
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