The Securities and Exchange Commission has charged Ambassador Advisors, a registered investment advisor based in Lancaster, Penn., and its principals with violating their fiduciary duties and creating a conflict of interest.
The SEC announced that Ambassador and principals Bernard Bostwick, Robert Kauffman and Adrian Young failed to inform clients that they were invested in mutual fund share classes that paid the principals additional compensation from 12b-1 fees—lowering clients’ returns because they are taken out of the fund’s assets on an ongoing basis—when similar, lower-cost products without 12b-1 fees were available.
“Defendants’ fiduciary duty included their obligation to seek best execution of clients’ transactions, and to fully disclose all material facts about the advisory relationship, including those relating to conflicts of interest that might cause them to put their own interests before their clients’ interests,” the SEC said in its complaint.
The violations occurred between August 2014 and December 2018. The SEC cited a 2014 event where Ambassador’s principals took in over $60,000 from 12b-1 fees on a class A shares selection when they could have offered a fund without those fees. And in 2015, Ambassador placed clients in class A shares that carried a 25 basis point fee, paying them over $30,000, even though a non-12b-1 share class was available.
The SEC says Ambassador also failed to implement written policies and procedures to ensure that the fiduciary duty would be applied to mutual fund share class recommendations and to ensure that Ambassador’s advisors disclosed any conflicts of interest related to such product selections.
The SEC seeks disgorgement of all gains from the violation and civil penalties.