Registered Investment Advisor McDermott Investment Advisors (MIA) and its founder Dean Patrick McDermott are the subject of a lawsuit filed by the Securities and Exchange Commission (SEC) for allegedly “double dipping” on fees by investing clients in securities that paid fees to an affiliated broker-dealer, rather than a cheaper alternative.
Clients Charged Unnecessary Transaction Fees
The lawsuit alleges that McDermott and MIA put over $5.7 million of its client’s assets into unit investment trusts (UITs) that charged a transaction fee, most of which was paid to a broker-dealer that was owned by McDermott, rather than a UIT with no transaction fee.
The higher-cost UITs cost clients more than $160,000 in fees, and it was never disclosed to clients that a cheaper alternative was available or that an affiliate would get that fee, which is a violation of federal law, according to the complaint.
The suit claims that McDermott Investment Advisors (MIA), a $147.3 million registered investment advisor (RIA) in Fort Myers, Florida, violated antifraud provisions of the Investment Advisers Act, defrauded clients, and breached its fiduciary duty.
The complaint states:
“McDermott, MIA and [the broker-dealer affiliate] were double dipping by receiving both the advisory fees and the fees generated by the more expensive securities. By causing their clients to pay these avoidable fees, defendants violated their fiduciary duty to seek best execution of these transactions on behalf of their clients.”
Registered Investment Advisor vs Broker-Dealer
A Registered Investment Adviser (RIA) is a firm that gets paid fees for giving financial advice and managing investments. RIAs must act as a fiduciary, which means in the best interest of their clients. On the other hand, broker-dealers and their representatives are paid a commission and provide recommendations. Broker-dealers and their representatives do not have to act as a fiduciary, but must make suitable recommendations to clients.
There is a different standard of care for RIAs and broker-dealers and their representatives. It can be confusing because any of them can call themselves a financial adviser. Some firms may be dual-registered as an investment adviser and a broker-dealer and can give advice for a fee and sell products for a commission.
Scott Silver, Silver Law Group’s managing partner, was interviewed by the website FundFire for an article on the SEC’s lawsuit regarding McDermott, saying:
“The excessive-fee issue has always been a hot-button issue. I think this growing trend of advisors wearing multiple hats is creating confusion. These cases show an intentional effort by financial advisors to maximize their own commission at the expense of a client.”
Contact Silver Law Group If You’ve Been Charged Excessive Fees
Silver Law Group represents the interests of investors who have been the victims of investment fraud. Scott Silver is the chairman of the Securities and Financial Fraud Group of the American Association of Justice and represents investors nationwide in securities investment fraud cases. Silver Law Group represents investors in securities arbitration claims. Please contact Scott Silver of the Silver Law Group for a free consultation at firstname.lastname@example.org or toll free at (800) 975-4345.