SEC Charges BMO for Failing to Disclose Conflicts of Interest to Investors

The Securities and Exchange Commission recently settled charges against two BMO advisory firms for failing to disclose how they selected investments in their retail investment advisory program – which allegedly included selecting proprietary, more expensive investments that resulted in greater profits for the BMO firms.

The SEC’s order states that BMO Harris Financial Advisors Inc. (BMO Harris) and BMO Asset Management Corp. (BMO Asset Mgmt), when choosing investment for clients in the firms’ Managed Asset Allocation Program (MAAP), systemically preferred proprietary mutual funds.

The SEC found that the BMO firms invested roughly half of their clients’ moneys in proprietary funds. The SEC found this practice resulted in greater management fees to BMO Asset Mgmt than it otherwise would have earned. But the SEC’s order found that BMO failed to disclose the conflict of interest to its clients. 

The SEC also found that BMO Harris did not disclose that steering client assets to more expensive share classes of proprietary mutual funds when less expensive share classes were available presented a conflict of interest. By selecting the more expensive share classes, BMO Harris received revenue-sharing payments and did not have to pay certain costs.  At the same time, clients allegedly received lower returns on these investments.

According to the co-chief of the SEC’s Enforcement Division’s Asset Management Unit, “These BMO advisers repeatedly put their own financial interests ahead of clients by giving preference to their own mutual funds or selecting higher-cost share classes.” 

The SEC’s order found that BMO Harris and BMO Asset Mgmt violated the Investment Advisers Act of 1940.  The two firms agreed to pay disgorgement and prejudgment interest of $29.73 million, as well as an $8.25 million civil penalty.

If you feel you have been a victim of BMO’s conflicts of interest, please contact the Business Trial Group.  Attorneys Jared Levy (561-812-1541) and Aiman Farooq (954-327-3041) will be happy to discuss your potential claims against BMO or any investment losses you suffered with a brokerage firm or registered investment adviser.

The Morgan & Morgan Business Trial Group helps investors recover their financial losses on a contingency basis.  You will never be charged hourly fees or expensive retainers. We are only paid if we successfully recover money for you.  

The Business Trial Group is backed by the size and skill of the largest contingency law firm in the nation – with more than 700 lawyers and offices throughout the country.  We regularly battle against brokerage firms, investment advisory firms, and banks, and have helped investors recover tens of millions of dollars of investment losses.