Try this thought experiment.
Imagine that every morning on your way to work, you stop at your favorite local convenience store and buy a bottle of cold brew coffee. It's near your office, so you stop by again on a coffee break later in the day, and then again on your way home from work. You do this months, maybe even years, as part of your regular routine. You get to know the cashiers who are there at those hours, perhaps even on a first name basis.
Then one day you get a notice in the mail of a regulatory settlement. The convenience store has agreed to pay millions of dollars in fines, and will be repaying customers like you, millions more, for selling you all the wrong products. You're confused, and you hope this doesn't mean that they'll stop carrying your cold brew coffee brand. You read more about the settlement and discover that the issue is that, in addition to selling individual bottles of cold brew coffee, the chain also sells six-packs; for really heavy regular customers like you, the regulator argues, the store should've been selling you those six-packs (which work out to be a big cheaper per bottle).
Are you confused yet? Don't worry, MFWire
hasn't transformed into some coffee- or convenience-store-focused trade publication. But can you imagine the scenario above ever playing out? And yet that is precisely what continues to happen in the mutual fund industry, with broker-dealers and banks and their sale of mutual funds.
Yesterday the SEC unveiled
that involves the bank paying a penalty of more than $1.1 million for using the wrong (i.e. more expensive) share classes with customers who were eligible for cheaper shares. SunTrust is also in the process of paying back nearly $1.3 million (including interest) to the customers in question.
The case is just the latest in a long line of regulatory smitings going back three years and affecting a who's who of big B-Ds — Axa
, Edward Jones, Janney Montgomery Scott, LPL
, Merrill Lynch
, Raymond James, Stephens, Stifel Nicolaus, and Wells Fargo — most of whom voluntarily came forward to avoid bigger regulatory pain once the hits started coming. And as in previous cases, the settlement is getting press coverage, this time in Barron's
, and Reuters
has been the most active regulator on this issue to date, this time it's the SEC doing the smiting. Perhaps this is a preview of more SEC action to come.
It's not clear that this case otherwise stands out from the laundry list of others so far. Yet it serves as another reminder of how different the rules are in this business from those in many other parts of life.
Neil Anderson, Managing Editor
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