Advisory Firm Settles Charges Related to Mutual Fund Share Class Selection, Agrees to Repay Clients
Sept. 25, 2020
File No. 3-20074
September 25, 2020 - The Securities and Exchange Commission today announced settled charges against Hancock Whitney Investment Services, Inc., a registered investment adviser and broker-dealer based in New Orleans, Louisiana, arising out of its mutual fund and money market share class selection practices. HWIS will distribute the fees it received as a result of its share class selection practices to harmed clients.
According to the SEC's order, at times from January 2014 to May 2017, HWIS failed to adequately disclose conflicts of interest arising from three different share class selection practices. First, the order finds that HWIS selected mutual fund share classes for clients that charged 12b-1 fees that financially benefitted HWIS, instead of lower-cost share classes of the same funds. Second, the order finds that HWIS selected mutual fund share classes for which it received revenue sharing payments, instead of lower-cost share classes of the same funds. Third, the order finds that HWIS selected a money market fund used as a cash sweep vehicle for which HWIS received revenue-sharing payments, instead of lower-cost share classes of the same fund. The order further finds that HWIS breached its duty to seek best execution for these transactions and that it failed to adopt and implement policies and procedures reasonably designed to prevent these violations. Although HWIS did not self-report to the Commission through the Division of Enforcement's Share Class Selection Disclosure Initiative, even though it was eligible to have done so, the SEC's order recognizes cooperation afforded the Commission staff and remedial actions promptly undertaken by the firm.
The SEC's order finds that HWIS violated Section 206(2) of the Investment Advisers Act of 1940 and the internal controls provisions of Section 206(4) of the Advisers Act and Rule 206(4)-7 thereunder. Without admitting or denying the findings, HWIS agreed to a cease-and-desist order, to be censured, to pay disgorgement of $1,651,686 plus prejudgment interest of $286,106, and to pay a civil penalty of $400,000. HWIS also agreed to comply with certain undertakings, including that it return funds to affected investors.
The SEC's investigation was conducted by Cynthia Storer Baran, John Farinacci and Robert Baker of the Asset Management Unit, and Jennifer Cardello of the Boston Regional Office.