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Hey yo Voya, this is the exactly kind of stuff I wrote my paper about! https://financialadvisoriq.com/c/3004403/376963/voya_over_fees_alts_cash_sweeps?referrer_module=emailReminder&module_order=14&login=1&code=Ymk1aWIzbHpiMjVBYm1WMUxtVmtkU3dnTVRJeE1UazNOelFzSURNME5ERTROVFUxTlE9PQ 1/11
Voya is a dual-registered (DR) investment adviser, with a brokerage division and a registered investment adviser (RIA) division. Dual-registration allows Voya to receive fees that independent RIAs cannot receive, because the fees come through the DR's brokerage division. 2/11
Despite being funneled through the brokerage division of Voya, these fees were generated by product sales occurring in the RIA division of Voya. You know, the guys that are legally required to be fiduciaries, with a duty of care and a duty of loyalty to their clients. 3/11
So how'd these fiduciaries do? "At times from January 2013 to December 2018, the company allegedly made misleading statements and failed to provide adequate disclosures about the 12b-1 fees it received from client investments." 4/11
12b-1 fees are fees that are embedded in mutual fund expense ratios, initially designed to provide "marketing support" to funds and historically the (appropriate) provenance of brokers, and not RIAs. In my view, if RIAs receive 12b-1's, they should reduce client fees. 5/11
"Voya also allegedly bought or recommended certain cash sweep money market funds for its advisory clients while receiving undisclosed revenue-sharing payments, which resulted in the clients paying higher fees and receiving lower performance." 6/11
Revenue sharing payments come from mutual fund families, and are funneled from the fund family's profitts (the management company, not funds themselves) to the dual-registered investment advisory firms (like Voya). 7/11
Think of them as kickbacks. Their existence is poorly disclosed, their amounts are pretty much never disclosed, and they are used by mutual fund firms to gain access to advisers (sales meetings and *due diligence* meetings and get their funds listed on "preferred" lists. 8/11
There's more: "The SEC also alleges that Voya’s selection of illiquid alternative investments with upfront commissions, when the same investments were available with such commissions waived, caused some of its advisory clients to pay higher fees." 9/11
In my paper, I argue that dual-registration incentivizes and encourages advisers to engage in this sort of behavior, which is not fiduciary-like, at least in my view. Independent RIAs without a brokerage arm literally CANNOT engage in this stuff. https://twitter.com/nikir1/status/1159112869419442182?s=20 10/11
Link to full paper here! 11/11 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3360537
