Banking, finance, and taxes

JPMorgan Wealth Management Subsidiaries Settle with SEC

Chris Lange

Published: December 18, 2015 12:10 pm

Last Updated: January 13, 2020 3:55 pm

The U.S. Securities and Exchange Commission (SEC) announced that two JPMorgan wealth management subsidiaries have agreed to pay $267 million and admit wrongdoing to settle charges regarding a failure to disclose conflicts of interest to clients.

A recent investigation by the SEC found that the firm’s investment advisory business JPMorgan Securities and nationally chartered bank JPMorgan Chase Bank preferred to invest clients in the firm’s own proprietary investment products without properly disclosing this preference.

Ultimately, this preference had an impact on two fundamental aspects of money management — asset allocation and the selection of fund managers — and deprived JPMorgan’s clients of information they needed to make fully informed investment decisions.

Andrew J. Ceresney, director of the SEC Enforcement Division, commented:

Firms have an obligation to communicate all conflicts so a client can fairly judge the investment advice they are receiving. These J.P. Morgan subsidiaries failed to disclose that they preferred to invest client money in firm-managed mutual funds and hedge funds, and clients were denied all the facts to determine why investment decisions were being made by their investment advisers.

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In addition to proprietary product conflicts, JPMS breached its fiduciary duty to certain clients when it did not inform them that they were being invested in a more expensive share class of proprietary mutual funds, and JPMCB did not disclose that it preferred third-party-managed hedge funds that made payments to a J.P. Morgan affiliate. Clients are entitled to know whether their adviser has competing interests that might cause it to render self-interested investment advice.

In a parallel action, JPMorgan Chase Bank agreed to pay an additional $40 million penalty to the U.S. Commodity Futures Trading Commission (CFTC).