Two BMO firms have settled allegations that they failed to disclose that their managed account products utilized costlier proprietary funds.
The U.S. Securities and Exchange Commission (SEC) announced that the two firms — BMO Harris Financial Advisors Inc. and BMO Asset Management Corp. — agreed to pay over US$37 million to settle allegations that they failed to disclose their approach to selecting funds for a retail investment advisory program, known as the managed asset allocation program (MAAP).
The firms settled the charges without admitting or denying the SEC’s findings. They agreed to pay US$29.7 million in disgorgement and prejudgment interest, and to pay a civil penalty of US$8.25 million.
According to the SEC’s order, the firms invested approximately 50% of MAAP client assets in proprietary funds, which resulted in clients paying additional management fees to BMO Asset Management, without disclosing the conflict of interest to clients.
The SEC found that the firm always selected the higher-cost, non-institutional share class of its proprietary funds for the MAAP. It also found that BMO Harris failed to disclose conflicts when investing MAAP client assets in higher-cost share classes when lower-cost share classes were available.
“These BMO advisers repeatedly put their own financial interests ahead of clients by giving preference to their own mutual funds or selecting higher-cost share classes,” said Dabney O’Riordan, co-chief of the SEC enforcement division’s asset management unit.
“This is important information for an adviser to tell clients as it goes to the heart of the adviser-client relationship and will impact the clients’ returns,” he added.