BMO Harris and BMO Asset Mgmt preferred investing in mutual funds (proprietary funds). These mutual funds are managed by BMO Asset Mgmt. Both advisory firms invested approximately 50 percent of MAAP client assets in proprietary funds, which resulted in payment of additional management fees to BMO Asset Management.
The SEC found that both BMO advisory firms did not disclose the practice or the conflict of interest to clients.
Additionally, the Commission found that BMO Asset Mgmt evaluated the lower-cost institutional share class for both proprietary and non-proprietary funds when considering mutual funds for MAAP. However, it constantly selected the higher-cost, non-institutional share class proprietary mutual funds for MAAP.
Furthermore, the SEC found that BMO Harris failed to disclose its conflict of interest when investing MAAP client assets in higher-cost share classes (managed by BMO Assett Mgmt) of certain mutual funds even when lower-cost share classes were available.
BMO Harris received revenue sharing payments and avoided paying certain transaction costs from its practice. However, its clients received lower returns on those investments.
