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SEC fines Thrivent over Reg BI violation involving mutual fund recommendations

On Behalf of | Oct 10, 2024 | Securities and Compliance

Thrivent Investment Management has been penalized by the Securities and Exchange Commission over a violation of Regulation Best Interest, reports ThinkAdvisor.

The firm was fined $25,000 for failure to comply with Reg BI between June 30, 2020, and July 2022. The action was taken over its recommendation that certain of its retail brokerage customers invest in Class A mutual fund shares instead of Class C mutual fund shares offered by the Nebraska NEST Advisor College Savings Plan and the Illinois Bright Directions Advisor-Guided 529 College Savings Program.

According to the SEC’s order, the Class A shares of the plans imposed upfront sales charges as well as annual fees. The Class C mutual fund shares did not impose upfront sales charges but charged higher annual fees than Class A shares for the first 10 years of the investment, after which they converted to Class A shares.

Thrivent and its registered representatives used a 529 College Savings Plans share class calculator to determine which mutual fund share class to recommend to retail customers.

“While historically, it may have been in the best interest of many of Thrivent’s customers to invest in Class A shares of the Nebraska and Illinois 529 Savings Plans, the Illinois 529 Savings Plan and the Nebraska 529 Savings Plan made changes to their expense structures in March 2020 and December 2020, respectively, that significantly reduced the annual fees charged on the Class C shares,” the order states.

“Until July 2022, Thrivent failed to update its calculator to account for these expense structure changes implemented in 2020, and as a result, recommended Class A shares of the Nebraska and Illinois 529 Savings Plans to its customers,” according to the order.

The SEC said Thrivent did not review or update the information in its 529 College Savings Plan share class calculator related to the reduction in expense ratios for Class C shares in the Illinois 529 Savings Plan and the Nebraska 529 Savings Plan.

As a result, according to the order, the calculator continued to indicate that Class A mutual fund shares were less expensive than Class C mutual fund shares for certain of Thrivent’s retail customers.

By not understanding the difference in costs of the Class A and Class C shares, it was determined that Thrivent and its registered representatives failed to exercise reasonable diligence, care, and skill when recommending investments in the Nebraska 529 Savings Plan and the Illinois 529 Savings Plan to customers.

Thrivent also failed to establish, maintain and enforce written policies and procedures reasonably designed to achieve compliance with Reg BI, and to meet the rule’s care and compliance obligations.

The SEC’s Reg BI establishes a “best interest” standard of conduct for broker-dealers when they make a recommendation to a retail customer of any securities transaction or investment strategy involving securities, requiring that they act in the customer’s best interest.

Without admitting or denying the findings, Thrivent consented to the fine and the entry of the order instituting administrative and cease-and-desist proceedings pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934, and Section 203(e) of the Investment Advisers Act of 1940.

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