The New Hampshire Bureau of Securities Regulation has been investigating the activities of American Express Financial Advisors between 1999 and 2004 with respect to allegations that it had intentionally steered investors to the company’s own poorly performing mutual funds rather than to those of other companies which were performing significantly better.
The agency also claimed that the American Express advisors regularly sold plans loaded with American Express funds or funds from its partners, without adequately disclosing the obvious conflict to the investors.
As the Director of the Bureau put it, as an investment advisor, American Express had the fiduciary duty to design the best financial plan for its customers rather than one which made the selling of proprietary funds the primary goal.
While both types of sales produce commissions, in-house funds also generate management fees which outside funds do not.
The settlement is comprised of $5 million in fines and penalties, up to $2 million in restitution to New Hampshire investors, and $375,000 to reimburse the state for the costs of the investigation.
Although American Express has not admitted any wrongdoing, it has altered its sales practices over the past two years by enhancing disclosure statements, strengthening compliance policies and procedures, and no longer linking bonuses to the sale of proprietary products. A spokesperson for the company stated American Express was “pleased to resolve the matter.”
During the period under investigation, American Express conducted contests designed to urge its advisers to pitch American Express funds and had the bonuses of senior executives more closely linked to the sale of proprietary funds.