BB&T to pay $100,000 penalty for not disclosing conflicts of interest, SEC says
September 10, 2018, 4:21 p.m. EDT
BB&T Investments, a subsidiary of BB&T Securities, advised its clients to select the wrap-fee program of an affiliated investment advisor without properly disclosing the relationship, according to the SEC.
As a result, the SEC has levied a $100,000 penalty on BB&T Investments.
The firm has already reimbursed its clients $635,535, reflecting the profit it made from early fees charged to clients that withdrew or closed accounts before the two-year mark, according to the SEC. The reimbursements were made at the end of 2015, approximately six months after the SEC investigation began, the regulator says.
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BB&T says it has taken precautions to keep this from happening again.
"At BB&T, the best interest of our clients continues to be our number one priority," said a spokesman for the firm in an email. "After reviewing this issue back in 2015, we promptly eliminated the early termination fee and reimbursed all termination fees to clients at that time. BB&T also took measures to prevent any further occurrences."
The firm recommended the wrap-fee program without disclosing a compensation arrangement between March 2012 and July 2015. Its disclosure materials explained "wrap fee programs are programs that provide clients with investment management and brokerage services for a single fee."
During this time, BB&T Investments, formerly known as BB&T Investment Services, was operating out of BB&T bank branches, where its investment counselors would make recommendations to retail customers, according to the regulator.
The counselors would profile the client, discuss investment options and recommend a wrap-fee program. The recommendation would be based on client information as well as the investment counselor's research and analysis.
The investment counselors could recommend three wrap-fee programs sponsored by three investment advisors, one of them being an BB&T-affiliated advisor, the SEC order says. The advisor was not disclosed in the SEC order.
While all three investment advisors offered comparable investment strategies, 78% of BB&T Investments' client assets were invested with the affiliated advisor, according to the SEC.
Under the deal with the BB&T-affiliated investment advisor, BB&T Investments received an advanced fee, a fee the firm would retain even if the client decided to withdraw funds or close the account within the first two years, the regulator says.
Investment counselors received portions of those fees, and would not have to return them if the account was closed. That said, the affiliated investment advisor charged clients an early termination fee for a withdrawal or closed account within the first two years. In essence, the client would be charged for the termination or withdrawal, not the investment counselor, according to the SEC.
In contrast, the other two investment advisors did not charge an early termination fee to clients. One investment advisor required that the counselor — not the client — pay back the advanced fee in the case of early termination. The other investment advisor had no advanced fee option, according to the SEC.
However, none of this information was disclosed to the client, the regulator says.
The conflict of interest between the investment advisor and BB&T Investments was included in the firm's Form ADV. However, BB&T Investments failed to disclose information that would allow clients to realize their counselor's recommendation might not be in their best interest, according to the SEC order.
BB&T settled with the SEC without admitting or denying the findings.
Jessica Mathews
Associate Editor, Financial Planning
SEC regulationsSEC enforcementBB&TSEC