Principal Securities – Securities Exchange Commission share class selection disclosure initiative
Principal Securities, Inc., a Registered Investment Adviser and a member company of Principal, decided to participate in a self-disclosure initiative that led to a settlement with the U.S. Securities and Exchange Commission (SEC). During a review of advisory accounts, Principal Securities discovered that certain clients are eligible for compensation for a marketing or distribution expense charged by one or more of the mutual fund holdings in advisory accounts.
On February 7, 2019, Principal Securities signed an Offer of Settlement with the SEC, and agreed to pay approximately $1.76 million, including interest, to compensate the affected clients. This payment represents compensation to clients for certain fees, known as 12b-1 fees (referring to Rule 12b-1, under the Investment Company Act of 1940). The accounts that incurred fees were received by Principal Securities from certain mutual funds in the account. Clients are receiving the payment, including applicable interest, because their account was eligible to be invested in institutional or other share classes of the same mutual funds which had lower overall expenses and did not pay 12b-1 fees to Principal Securities.
Principal Securities will be processing payments (credits) to open accounts and issuing checks on closed accounts. As a result of further discussions with SEC staff, de minimis recipients with open accounts will now receive reimbursement (credited) to their open account including, for amounts payable on closed accounts, if their closed account is the same type of account as their open account. Other de minimis payment amounts will instead be paid to the US Treasury. Principal Securities has updated its procedures with continued focus on the clients’ interests.
View the language of the SEC's order (PDF).