The SEC is going after an RIA and its founder over sales of unit investment trusts, according to news reports.

McDermott Investment Advisors and its founder Dean Patrick McDermott allegedly invested the firm’s advisory clients in UITs that came with a transaction fee when a cheaper version of the UITs were available to them, FA-IQ sister publication FundFire writes, citing the SEC’s lawsuit filed in a Pennsylvania federal court.

What’s more, the fees collected allegedly mostly went to a broker-dealer wholly owned by McDermott, according to the suit cited by the publication.

In all, the RIA and McDermott bought more than $5.7 million worth of the higher-cost UITs for its advisory clients, the SEC claims, according to FundFire.

Meanwhile, 90% of the $160,000 in fees charged to the clients went to McDermott’s broker-dealer, according to the suit cited by the publication.

“McDermott, MIA and [the broker-dealer affiliate] were double-dipping by receiving both the advisory fees and the fees generated by the more expensive securities,” the complaint says, according to FundFire. “By causing their clients to pay these avoidable fees, defendants violated their fiduciary duty to seek best execution of these transactions on behalf of their clients.”

McDermott and the SEC declined comment to the publication.

The SEC has been cracking down on fee violations over the past two years.

Earlier this week, Raymond James Financial settled with the regulator for $15 million over improperly charging client advisory fees and extra UIT commissions, as reported.

In March, the regulator settled with 79 advice firms who agreed to pay back $125 million to clients affected by 12b-1 fee violations, following a self-reporting initiative related to such violations the SEC had launched in early 2018.


Lawyers say the regulator is likely to continue its scrutiny of fee and revenue arrangements, particularly in light of recent SEC charges against Commonwealth accusing the firm of costing investors more than $100 million through its revenue-sharing programs.