The SEC complaint accuses the Commonwealth of breaching its fiduciary duty to its clients by not making public the conflicts of interest resulting from obtaining compensation through the revenue-sharing agreement. In particular, the SEC asserts that Commonwealth «did not inform its clients that i) there were investment investments in the investment fund class cheaper for clients than some of the investment fund stock market class investments that led to payments for the distribution of income to Commonwealth, (ii) there were investments of investment funds that were not subject to income sharing in the Commonwealth and (iii) there were payments of payments to the Commonwealth under the broker`s «transaction fee» program. The SEC found that the agreement contained specific conditions: disclosure of (i)[a]ny conflicts of interest related to [participation in revenue], including and without restriction all incentives resulting from obtaining (or intended) compensation or other payments on balances or positions in mutual funds to favour these types of investments over others» and (ii) «the nature, scope and other essential terms of payments that [Commonwealth] may receive, in accordance with the Revenue Allocation Agreement].» The SEC did not charge nationally in its complaint. In addition, according to the SEC, the Commonwealth, when it decided to buy or retain a particular investment fund for a client, sometimes had more than one class of shares to choose from for investment funds. Among these categories of available shares were those who calculated a transaction tax and those who did not. Non-share classes of transaction fees often had higher internal expenses and paid more revenue to the Commonwealth than the units of transaction commissions. When published by the Securities and Exchange Commission (SEC) on the public notice6, the non-cash proposal contained an additional provision that provides that certain cash clearing credits must be weighted equally for the sale of investment funds and variable products. The purpose of this provision was to prevent members from paying scriptural bonuses in the form of cash and thus avoiding non-cash provisions. However, some commentators, particularly insurance brokers/traders, have stated that such a requirement appears to require equal treatment of all forms of cash compensation.
In particular, commentators were concerned that the proposed rules would restrict the ability of member companies and their associated insurance companies to pay higher commissions or offer higher incentives for their own products. In addition, commentators drew attention to the difficulties encountered in determining what compensation practices would be considered cash or non-payment allowance for the purposes of the proposed rule and to what extent these practices strongly encouraged sellers to sell one product through another. As a result of these comments, the Board of Directors of the NASD Regulation authorized the removal of the provision that imposes identical credits for certain cash compensation incentives. On May 6, 1997, the NASD Regulation again submitted the non-cash proposal to the SEC, without the cash incentive provision being terminated. According to the SEC, Commonwealth is also an introductory broker, which means it accepts customer orders, but has an agreement with another broker known as a countervailing broker, to conduct and evacuate client transactions and maintain stays of stakes in Commonwealth client accounts. You should take a look at all of them, if you look at the wrap programs on the case of the Royal Alliance, which had a number of trading problems, they also had a sales-sharing problem, but the big deal of the Royal Alliance was the SEC very critical of Royal Alliance for very often with B shares that had no front-end load but had a 12B1 as opposed to A shares that had a pre-end charge.