SEC fines KMS Financial Services $100,000 for conflicts of interest
Agency says Seattle-based hybrid failed to disclose revenue-sharing with broker-dealer.
KMS Financial Services, a Seattle-based hybrid RIA firm, has settled charges that it failed to disclose conflicts of interest stemming from receiving revenue from a third-party broker-dealer.
Without admitting or denying the SEC’s findings, KMS consented to a censure, a cease-and-desist order, and the payment of disgorgement of $382,568.64, plus prejudgment interest, and a $100,000 penalty.
The Securities and Exchange Commission said since at least 2002, the firm had “participated in a program offered by its clearing broker whereby it agreed to share with KMS revenues it received from certain mutual funds,” the agency said in an administrative proceeding.
The SEC said the payments provided a financial incentive for KMS to favor the mutual funds in the program over other investments when advising clients.
In addition, since 2014, when KMS negotiated a $1 per trade reduction in the clearance and execution costs charged by the clearing broker, the firm continued to charge advisory clients the same overall brokerage commission and did not pass the cost reduction on to its advisory clients. The SEC said KMS “did not consider whether advisory clients continued to receive best execution in light of the increased portion of the charges KMS kept.”
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