The Securities and Exchange Commission says it has ordered MML Investors Services, MassMutual’s broker-dealer, to pay around $2.1 million over alleged violations in its revenue-sharing arrangements.
From October 2015 to February 2017, MMLIS allegedly received revenue-sharing from its clearing broker’s s no-transaction-fee mutual fund program, according to an administrative proceeding document the regulator published on Friday.
In addition, from at least March 2015 to February 2017, MSI Financial Services — a former registered investment advisor firm and broker-dealer that was absorbed into MMLIS in March 2017 — likewise allegedly received revenue-sharing from its clearing broker’s NTF program, the SEC says.
The regulator claims that neither MMLIS nor MIS disclosed the alleged conflicts of interest in these arrangements, such as their incentive to favor mutual funds or share classes of funds that were part of the NTF program over others when recommending them to clients.
In addition, MMLLIS and MIS allegedly failed in their duty of best execution by favoring products that resulted in revenue sharing payments for the companies even though their clients were eligible for more favorable funds, according to the SEC.
Finally, the regulator claims that since 2015, MMLIS and MSI failed to adopt written compliance policies and procedures to prevent violations in connection to its revenue sharing arrangements.
From October 2018 to December 2019, MMLIS allegedly received approximately $2.5 million in revenue sharing payments from its clearing broker, according to the document.
The SEC says that in the course of its investigation, MMLIS opted to credit the entire $2.5 million back to its clients. In addition, in January 2020, the company changed it practices in regard to mutual fund revenue sharing, promising to conduct periodic reviews of its share classes and then convert any investors holding more expensive share classes to more favorable ones, according to the regulator.
Nonetheless, the SEC ordered MMLIS to pay $1.15 million in disgorgement, plus prejudgment interest of close to $259,000, as well as a civil money penalty of $700,000, according to the document.
MMLIS agreed to pay the money, as well as to a censure and a cease-and-desist order, without admitting or denying the findings, the SEC says.
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