JPMorgan Chase & Co. JPM is said to be amid discussions with the U.S Securities and Exchange Commission (“SEC”) to resolve an investigation over the sale and use of proprietary products such as JPMorgan mutual funds in the company’s wealth management businesses. The news was first reported by the Wall Street Journal.
The Matter
JPMorgan came under the SEC radar last year after a probe was launched by the Office of the Comptroller of the Currency (“OCC”) to conduct an investigation into the potential conflict of interests in the bank’s private banking division. The OCC pressurized major banks including Bank of America Corporation BAC and Wells Fargo & Company WFC to enhance the disclosure standards to clients.
A parallel inquiry was then run by the SEC to check whether JPMorgan’s sale of its in-house investment products to the private-banking clients has been inappropriately administered.
In May 2015, JPMorgan disclosed about the fresh inquiry initiated by the SEC and other government authorities in its quarterly filing and stated that it was cooperating with the concerned authorities.
Generally, banks can generate more fee income from selling in-house financial products to its private-banking clients. The SEC’s inquiry deals with how investment advisors of JPMorgan recommended investment products to their clients.
In case the investment advisors are registered with the SEC, they have to adhere by the fiduciary standard that requires them to recommend only those financial products that serve the best interests of the clients. Most investment specialists working with JPMorgan are bound by this fiduciary standard.
However, JPMorgan promoted the use of its own proprietary products instead of selecting more suitable alternatives beneficial for clients. Thus, the bank has triggered a likely settlement event in the near term by putting its own interests ahead of the clients.
Our Take
The stricter regulatory stance has led to more transparency in the disclosure standards at JPMorgan and other banks. This will surely aid private-banking clients to make more informed investment decisions.
Currently, JPMorgan carries a Zacks Rank #3 (Hold). A better-ranked major regional bank includes KeyCorp. KEY, which holds a Zacks Rank #2 (Buy).
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