SEC Charges Investment Adviser for Breaching Its Fiduciary Duty to Clients with Wrap Accounts and Orders It to Repay Over $760,000 to Harmed Investors

ADMINISTRATIVE PROCEEDING
File No. 3-20833

April 27, 2022 - The Securities and Exchange Commission today announced settled charges against registered investment adviser HighPoint Advisor Group, LLC for breach of fiduciary duty to advisory clients for failures regarding conflicts disclosures, best execution, and duty of care.

The SEC's order finds that HighPoint invested certain wrap program clients in higher-cost mutual fund share classes than were otherwise available, while failing to disclose the conflicts of interest associated with those investment recommendations. Like many wrap programs, the order finds, HighPoint paid all client trading costs - including fees for buying and selling mutual funds. According to the order, from January 2014 through 2019, HighPoint and its investment adviser representatives avoided transaction fees by recommending mutual fund share classes from a no-transaction fee program offered by its clearing firm, including those that charged fees pursuant to Rule 12b-1 of the Investment Company Act of 1940, instead of lower-cost share classes of the same fund. Although HighPoint and its investment adviser representatives did not receive any 12b-1 fees, the no-transaction fee mutual fund share classes were more expensive than other share classes, and HighPoint benefited by not paying any transaction fees when recommending such mutual fund share classes.

The order finds that HighPoint did not provide full and fair disclosure to clients concerning its recommendations of no-transaction fee mutual fund share classes and its associated conflicts of interest. Similarly, HighPoint breached its duty of care, including its duty to seek best execution, by causing wrap clients to invest in fund share classes that charged 12b-1 fees when share classes of the same funds that presented a more favorable value were available to the clients.

The SEC's order finds that HighPoint violated Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7 thereunder. Without admitting or denying the findings, HighPoint consented to a cease-and-desist order and a censure, and agreed to pay disgorgement of $508,995, prejudgment interest of $130,742, and a civil money penalty of $125,000. HighPoint also agreed to distribute funds to harmed clients and comply with certain undertakings.

The SEC's investigation was conducted by Andrew Shoenthal and Jeffrey Shank from the Asset Management Unit in the Chicago Regional Office. John Farinacci, an industry expert in the Asset Management Unit, assisted with the investigation.