In the Matter of : AND CEASE-AND-DESIST PROCEEDINGS,

UNITED STATES OF AMERICA 
Before the 
SECURITIES AND EXCHANGE COMMISSION 
 
SECURITIES ACT OF 1933  
Release No. 8637 / December 1, 2005 
 
SECURITIES EXCHANGE ACT OF 1934 
Release No. 52861 / December 1, 2005 
 
ADMINISTRATIVE PROCEEDING 
FILE NO. 3-12115 
________________________ 
    : 
                            : ORDER INSTITUTING ADMINISTRATIVE 
In the Matter of  : AND CEASE-AND-DESIST PROCEEDINGS, 
                                                :            MAKING            FINDINGS,            AND            IMPOSING            
American Express      : REMEDIAL SANCTIONS AND A CEASE- 
Financial Advisors Inc. : AND-DESIST ORDER PURSUANT TO  
(now known as Ameriprise  : SECTION 8A OF THE SECURITIES ACT OF 
Financial Services, Inc.), : 1933 AND SECTIONS 15(b) AND 21C OF THE 
                                                :            SECURITIES            EXCHANGE            ACT            OF            1934 
            Respondent.  :                      
________________________: 
 
 
I. 
 
 The Securities and Exchange Commission (“Commission”) deems it appropriate and 
in the public interest that public administrative and cease-and-desist proceedings be, and 
hereby are, instituted pursuant to Section 8A of the Securities Act of 1933 (“Securities Act”) 
and Sections 15(b) and 21C of the Securities Exchange Act of 1934 (“Exchange Act”) 
against American Express Financial Advisors Inc. (now known as Ameriprise Financial 
Services, Inc.) (“AEFA” or “Respondent”). 
 
II. 
 
 In anticipation of the institution of these proceedings, Respondent has submitted 
an Offer of Settlement (the “Offer”) which the Commission has determined to accept.  
Solely for the purpose of these proceedings and any other proceedings brought by or on 
behalf of the Commission, or to which the Commission is a party, and without admitting 
or denying the findings herein, except as to the Commission’s jurisdiction over it and the 
subject matter of these proceedings, Respondent consents to the entry of this Order 
Instituting Administrative and Cease-and-Desist Proceedings, Making Findings, and 
Imposing Remedial Sanctions and a Cease-and-Desist Order Pursuant to Section 8A of 

 
2
the Securities Act and Sections 15(b) and 21C of the Exchange Act (“Order”), as set forth 
below. 
 
III. 
 
 On the basis of this Order and Respondent’s Offer, the Commission finds
1
 that:  
 
Respondent
 
 
1.         AEFA
2
, now known as Ameriprise Financial Services, Inc., is a Delaware 
corporation with headquarters located in Minneapolis, MN.  AEFA has been registered 
with the Commission as a broker-dealer since 1971 and as an investment adviser since 
1979.  At all relevant times, AEFA has been a subsidiary of American Express Financial 
Corporation, now known as Ameriprise Financial, Inc.  AEFA has over 10,000 registered 
representatives whom it calls “financial advisors” and more than 3,750 branch offices 
across the United States.  AEFA operates the majority of its branch offices pursuant to 
franchise agreements.   
  
Background
 
 
2. This matter arises from AEFA’s failure to adequately disclose certain material 
facts to its brokerage customers in the offer and sale of mutual fund shares and interests 
in college savings plans established under Section 529 of the Internal Revenue Code 
(“529 plans”).  Specifically, AEFA did not adequately disclose to its brokerage customers 
information concerning revenue sharing agreements it had with certain mutual fund 
families.   
 
3. Between January 2001 and August 2004, AEFA did not adequately disclose 
material information concerning its conflicts of interest in offering and selling shares of 
twenty-seven preferred mutual fund families whose affiliates made revenue sharing 
payments to AEFA in exchange for, among other things, inclusion on AEFA’s brokerage 
platform.  Between April 2003 and August 2004, AEFA’s disclosures concerning these 
conflicts improved, but were still deficient in certain respects.  From October 2003 to the 
present, AEFA also has not adequately disclosed certain material facts about its conflicts 
of interest in the offer and sale of interests in nine 529 plans concerning revenue sharing 
payments made to AEFA by affiliates of the nine fund families that administered the 529 
plans.    
 
AEFA’s Revenue Sharing Agreements
 
 
4. In approximately January 2001, AEFA created its Preferred Provider program 
which it used to promote twenty-seven mutual fund families.  AEFA received substantial 
                                                
 
1
 The findings herein are made pursuant to Respondent’s Offer of Settlement and are not binding on any 
other person or entity in this or any other proceeding. 
2
 As used herein, the name “AEFA” refers to American Express Financial Advisors Inc. and all predecessor 
and successor entities, including Ameriprise Financial Services, Inc. 

 
3
payments, in the form of cash or “hard dollars,” paid directly from advisers or distributors 
affiliated with mutual fund companies.  AEFA also received substantial payments in the 
form of directed brokerage commissions for distribution of mutual fund shares through 
“step-out” arrangements.  In these instances, the advisers or distributors of certain mutual 
fund families instructed the brokerage firm or firms executing portfolio transactions for 
their mutual funds to “step out” of the transactions and direct a portion of the 
commissions for the transactions to AEFA for distribution of fund shares. 
 
5. In June 2003, AEFA replaced the Preferred Provider program with the Select 
Group program through which it continued to receive substantial revenue sharing 
payments from affiliates of 29 mutual fund families. 
 
6.  Between January 2001 and the present, AEFA has received tens of millions of 
dollars each year in cash and non-cash revenue sharing payments from affiliates of the 
mutual fund families participating
 in the Preferred Provider and Select Group programs. 
These payments are in addition to standard sales loads, commissions, Rule 12b-1 fees, 
expense reimbursements and other fees for maintaining customer account information.  
Historically, with one exception, the fund families offered by AEFA through its 
brokerage platform have been either proprietary funds or funds of mutual fund families 
whose affiliates made revenue sharing payments to AEFA.   
 
The Preferred Provider Program
 
 
7. In January 2001, AEFA created the Preferred Provider program, which was 
designed to promote the sale of preferred mutual fund families.  AEFA required these 
mutual fund families to pay revenue sharing in order to gain access to the benefits of the 
Preferred Provider program.  With the exception of one outside fund family and the AXP 
Funds, AEFA offered on its brokerage platform only mutual fund families whose 
affiliates paid revenue sharing.  
 
8. The Preferred Provider program consisted of three sub-programs:  (1) Strategic 
Partner program; (2) Preferred Partner program; and (3) Other Partner program.  AEFA 
defined the Strategic Partners as mutual fund families whose affiliates paid maximum 
revenue sharing, provided marketing support to AEFA’s financial advisors and agreed to 
distribute AEFA products on their distribution channels.  AEFA defined the Preferred 
Partners as mutual fund families whose affiliates paid maximum revenue sharing, 
provided marketing support to AEFA’s financial advisors, offered a broad range of 
mutual funds and had “good performance” ratings.  Finally, AEFA defined the Other 
Partners as mutual fund families whose affiliates paid some revenue sharing, but received 
no special access to AEFA’s financial advisors.   
 
9. For participation in the Preferred Provider program, AEFA required affiliates of 
the Strategic Partner and Preferred Partner mutual fund families to pay average revenue 
sharing at a target level of 15 basis points (“bps”)
3
 calculated as a percentage of a 
particular fund family’s total assets.  AEFA required affiliates of the Other Partner 
                                                 
3
 A “basis point” is one one-hundredth of one percent.   

 
4
mutual fund families to pay average revenue sharing at a target level of 10 bps on total 
assets.  At the request of the fund families, AEFA accepted the payment of directed 
brokerage commissions through “step-outs” from several mutual fund families that 
participated in the program in satisfaction of all or a portion of their revenue sharing 
obligations.  
 
10. AEFA offered several benefits and incentives to the mutual fund families that 
participated in the Preferred Provider program.  AEFA allowed both the Strategic Partner 
and Preferred Partner fund families to contact AEFA’s financial advisors through e-mail, 
telephone, private meetings and the distribution of sales literature.  On occasion, affiliates 
of the Preferred Partner and Strategic Partner fund families paid for certain of the 
financial advisors’ marketing costs by co-sponsoring client marketing events for AEFA’s 
brokerage customers.  AEFA also gave the Strategic Partners and Preferred Partners 
exclusive access to its financial advisors at conferences.  At these conferences, Strategic 
Partner and Preferred Partner mutual fund families provided speakers who interacted with 
AEFA’s financial advisors and provided training on their products and investment 
strategies.   
 
The Select Group Program
 
 
11. In June 2003, AEFA replaced the Preferred Provider program with the Select 
Group program, which is currently operating.  The Select Group program consists of 
three sub-programs:  (1) Select Group; (2) Associate Group; and (3) Other Group.  
Similar to the Preferred Provider program, with the exception of one outside fund family 
and AXP Funds, AEFA exclusively offers and sells mutual fund families on its brokerage 
platform whose affiliates pay revenue sharing as part of the Select Group program.   
 
12. The Select Group consists of eleven non-proprietary fund families and the AXP 
Funds.  In exchange for receiving revenue sharing payments at a target level of 25 bps on 
sales and 20 bps on assets as a percentage of total assets, AEFA gives members of the 
Select Group preferential marketing treatment. 
 
13. AEFA permits participating fund families in the Select Group to contact and 
distribute sales literature to AEFA’s financial advisors and participate in AEFA’s 
conferences.  AEFA also gives the Select Group fund families the opportunity to invite 
financial advisors to their due diligence meetings.  Similar to the Preferred Provider 
program fund families, on occasion, affiliates of the Select Group fund families pay for 
certain of the financial advisors’ marketing costs by co-sponsoring client marketing 
events for AEFA’s brokerage customers.   
 
14. The Associate Group consists of nine fund families whose affiliates make revenue 
sharing payments at a target level of 15 bps on assets as a percentage of total assets.  
AEFA receives lower revenue sharing on behalf of the Associate Group members than on 
behalf of Select Group members, and in return gives them less marketing access and 
visibility with AEFA’s financial advisors.   
 

 
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15. AEFA provides the Associate Group with access to its financial advisors, 
authorizes the Associate Group to contact and distribute sales literature to AEFA’s 
financial advisors and permits the Associate Group to participate in AEFA’s conferences.   
 
16. AEFA collects from affiliates of the Other Group mutual fund families revenue 
sharing payments at a target level of approximately 10 bps on assets as a percentage of 
total assets.  AEFA does not provide the Other Group with preferential marketing 
treatment.   
 
Financial Incentives Received By AEFA, Its Employees 
 
And Its Financial Advisors 
  
17. AEFA provided financial incentives to its financial advisors to promote the sale of 
fund families that participated in the Preferred and Select Group programs over other 
mutual fund families whose affiliates did not pay revenue sharing, primarily through the 
reduction of ticket charges to the financial advisors for sales of the participating fund 
families.    
 
18. Beginning in the fall of 2000, AEFA started requiring many of its financial 
advisors to pay ticket charges for sales of non-proprietary mutual fund transactions.  
These ticket charges ranged from $15 to $85 per transaction for sales of non-proprietary 
mutual funds.
4
  From this time through June 30, 2003, AEFA did not assess ticket 
charges on sales of its proprietary funds.  Starting in January 2001, AEFA waived 
portions of the ticket charges for all fund families participating in the Preferred Provider 
program.  From January 1, 2001 to June 30, 2003, AEFA waived several million dollars 
in ticket charge expenses for the sale of Preferred and Strategic Partner fund families.  
 
19.  In addition, in approximately August 2002, AEFA offered the fund families 
participating in its Preferred Provider program the opportunity to subsidize financial 
advisors’ ticket charges for sales of their mutual funds.  Affiliates of two fund families 
agreed to subsidize ticket charges relating to all sales of their mutual funds.  At this time, 
sales of these two fund families significantly increased.  The affiliates of these two fund 
families stopped subsidizing ticket charges for sales of their mutual funds in June 2003 
when the Select Group program was formed.   
 
20. Beginning with the creation of the Select Group program in June 2003, AEFA, 
pursuant to the terms of the Select Group program agreements, began waiving or 
reducing ticket charges in connection with certain transactions.   
 
21. Ticket charges under both the Preferred Provider and Select Group programs 
promoted the sale of mutual fund families whose affiliates paid the highest revenue 
sharing.  Affiliates of the Preferred Provider and Select Group fund families paid the 
highest revenue sharing and thus these fund families received the benefit of the lowest 
ticket charges per transaction.      
                                                
 
4
 For systematic investments, AEFA’s ticket charges were significantly lower, starting at $2.50 per 
transaction. 

 
6
 
22. AEFA also imposed higher ticket charges for sales of fund families whose 
affiliates did not pay revenue sharing.  For example, in 2002, AEFA increased the ticket 
charges for transactions in one non-proprietary fund family whose affiliates did not pay 
cash or non-cash revenue sharing by increasing the ticket charge for transactions in this 
fund family to $85 per transaction.  Historically, this fund family was one of the top 
selling non-proprietary fund families at AEFA.  Although AEFA disclosed that it may 
charge its financial advisors between $0 and $85 per transaction, AEFA did not disclose 
that only sales of this particular fund family were subject to a ticket charge as high as 
$85.  After AEFA increased the ticket charge on this fund family, its sales significantly 
decreased. 
 
AEFA Did Not Adequately Disclose Its Revenue Sharing Programs To Its 
Customers 
 
23. AEFA did not make adequate disclosures to its brokerage customers relating to its 
receipt of revenue sharing payments from the inception of the program through 
approximately August 2004.  Instead, AEFA relied on incomplete disclosures in its 
brokerage application, in some of its brochures and in the prospectuses and Statements of 
Additional Information (“SAIs”) of the mutual fund families that participated in the 
Preferred Provider and Select Group programs to disclose its revenue sharing practices.  
Although the mutual fund families’ prospectuses and SAIs contained various disclosures 
concerning payments to broker-dealers distributing their funds, many of these documents 
did not adequately disclose the source and the amount of the revenue sharing payments to 
AEFA and the dimensions of the resulting conflicts of interest.   
 
24. None of the disclosures made by the participating mutual fund families indicated 
that many of AEFA’s financial advisors were given financial incentives of paying 
reduced or no ticket charges for the sale of Preferred, Strategic, Select and Associate fund 
families at AEFA or that those financial advisors did not receive similar incentives for the 
sales of fund families that did not pay revenue sharing. 
 
25. Moreover, these disclosures did not disclose the conflict of interest created by 
AEFA’s selection of mutual fund families for participation in its distribution system 
based in part on the financial incentives provided to AEFA, including in some cases, the 
receipt of payments for distribution of fund shares through “step-outs.”  Until 2004, none 
of AEFA’s disclosures adequately described the conflict of interest created by the varying 
levels of access that fund families had to AEFA’s distribution system, based in part on 
the varying levels of revenue sharing paid on behalf of these preferred fund families.   
 
26. In April 2003, AEFA began disclosing that it assessed different ticket charges to 
different classes of mutual fund families in its financial advisory services brochure 
(“ADV Brochure”).  AEFA also began disclosing in its ADV Brochure that AEFA’s 
financial advisors have financial incentives for selling certain select mutual funds, 
including paying different or no ticket charges for sales of certain mutual funds and the 
general ranges of the ticket charges.  Prior to this disclosure, AEFA did not disclose 

 
7
AEFA’s and its financial advisors’ conflicts of interests related to sales of certain mutual 
fund families.     
 
27. In August 2003, with the implementation of the Select Group program, AEFA 
disclosed in its brokerage applications that, in exchange for certain benefits, such as 
broader access to AEFA’s financial advisors, affiliates of certain fund families in the 
Select Group program are required to pay AEFA for participation in the program by 
sharing with AEFA a portion of the revenue generated from the sales of fund shares.  
AEFA also disclosed that certain fund families in the Select Group program have the 
ability to provide AEFA’s financial advisors with educational and training materials and 
sales and product support and that ticket charges may be eliminated on sales of certain 
funds participating in the Select Group program.  AEFA disclosed that these factors may 
lead a financial advisor to recommend a fund family from the Select Group over another 
fund family.  However, AEFA did not disclose that it received significant amounts of 
revenue sharing payments on behalf of the Associate Group or the Other Group or the 
source and amount of the payments made on behalf of any fund families participating in 
the Select Group program.   
 
28. In April 2004, AEFA further expanded the disclosures in one of its brochures, 
“An Investor’s Guide to Purchasing Mutual Funds Through American Express Financial 
Advisors,” to list all of the mutual fund families on behalf of whom AEFA received 
revenue sharing payments, including the Select Group, Associate Group and Other Group 
fund families, and the maximum amount of revenue sharing AEFA received on behalf of 
these fund families.  In August 2004, AEFA disclosed all of this information in its ADV 
Brochure, brokerage application, brokerage customer account statements and 
confirmations. 
 
AEFA’s 529 College Savings Plan Sales And Disclosures
 
 
29. Since 2001, AEFA has offered and sold interests in 529 college savings plans to 
its customers.  Offers and sales of interests in 529 plans are municipal securities 
transactions.   
 
30. AEFA currently has selling agreements with 9 mutual fund companies to sell 
interests in 529 plans that they administer.  AEFA promotes only the 529 plans of the 
Select Group program fund families that offer 529 plans and whose affiliates pay AEFA 
revenue sharing.   
 
31. From October 2003 to the present, AEFA has not disclosed in confirmations of its 
sales of interests in 529 plans, the revenue sharing payments that AEFA receives from the 
sale of 529 plans.  Starting in November 2004, AEFA began disclosing the financial 
incentives it receives from the sale of interests in 529 plans in its brochure An Investor’s 
Guide to Purchasing 529 Plans Through AEFA Financial Advisors. 
  
 

 
8
32. Based on the conduct described above, AEFA willfully
5
 violated: 
 
a. Section 17(a)(2) of the Securities Act, which provides that it is “unlawful 
for any person in the offer or sale of any securities . . . by the use of any means or 
instruments of transportation or communication in interstate commerce or by use 
of the mails, directly or indirectly . . . to obtain money or property by means of 
any untrue statement of a material fact or any omission to state a material fact 
necessary in order to make the statements made, in light of the circumstances 
under which they were made, not misleading;”  
 
b. Rule 10b-10 under the Exchange Act, which provides in pertinent part that 
it is “unlawful for any broker or dealer to effect for or with an account of a 
customer any transaction in, or to induce the purchase or sale by such customer 
of, any security . . . unless such broker or dealer, at or before completion of such 
transaction, gives or sends to such customer written notification disclosing . . . the 
source and amount of any other remuneration received or to be received by the 
broker in connection with the transaction;” and 
 
c. Section 15B(c)(1) of the Exchange Act, which provides that “[n]o broker, 
dealer, or municipal securities dealer shall make use of the mails or any means or 
instrumentality of interstate commerce to effect any transaction in, or to induce or 
attempt to induce the purchase or sale of, any municipal security in contravention 
of any rule of the [Municipal Securities Rulemaking] Board.” 
 
33. By virtue of its sales of interests in 529 college savings plans, as described above, 
AEFA violated Municipal Securities Rulemaking Board (“MSRB”) Rule G-15, which 
requires a broker or dealer to send or give a written confirmation to its customer, at or 
before the completion of a municipal securities transaction, that discloses, among other 
things, either: “(A) the source and amount of any remuneration received or to be received 
. . . by the broker [or] dealer . . . in connection with the transaction from any person other 
than the customer, or (B) a statement indicating whether any such remuneration has been 
or will be received and that the source and amount of such other remuneration will be 
furnished upon written request of the customer.”  
 
Undertakings
 
 
34. AEFA undertakes the following
6
: 
 
a. AEFA shall place and maintain on the mutual fund page of its public 
website within 15 days of the date of entry of this Order disclosures regarding its 
Select Group program to include:  (i) the existence of the program; (ii) the mutual 
                                                
 
5
 “Willfully” as used in this Order means intentionally committing the act which constitutes the violations.  
See
 Wonsover v. SEC, 205 F.3d 408, 414 (D.C. Cir. 2000); Tager v. SEC, 344 F.2d 5, 8 (2d Cir. 1965).  
There is no requirement that the actor also be aware that he is violating one of the Rules or Acts. 
6
 The undertakings and sanctions set forth herein shall be binding upon all successors to Respondent, and 
any affiliate of Respondent to the extent the matters described herein (including the disclosure or collection 
of revenue sharing payments for Respondent) are delegated to such affiliate.   

 
9
fund families participating in the program; (iii) the amount of revenue sharing 
payments that AEFA receives from each of the program’s fund families in 
connection with the fund families’ participation in the program based on a 
reasonable estimate from historical experience, expressed in basis points or 
dollars; (iv) the total amount of revenue sharing payments (expressed in dollars) 
that AEFA receives annually, starting with the amount received in 2004 and 
updated each year thereafter; and (v) the source of such payments (fund assets, 
adviser, distributor, underwriter, etc.). 
 
b. AEFA shall place and maintain on the college savings program portion of 
its public website within 15 days of the date of entry of this Order disclosures 
regarding its Select Group program to include:  (i) the existence of the program; 
(ii) an identification of the Select Group program fund families that pay AEFA 
revenue sharing for sales of 529 plans; (iii) the amount of revenue sharing 
payments that AEFA receives from each of these fund families based on a 
reasonable estimate from historical experience, expressed in basis points or 
dollars; (iv) the total amount of revenue sharing payments (expressed in dollars) 
that AEFA receives annually, starting with the amount received in 2004 and 
updated each year thereafter; and (v) the source of such payments (fund assets, 
adviser, distributor, underwriter, etc.). 
 
c. AEFA shall send the information contained in paragraphs a. and b. above:  
(i) to its current customers beginning 120 days following the date of entry of this 
Order in the customers’ next statement issued by AEFA, or in a stand-alone 
mailing to 529 plan customers for whom AEFA does not send regular statements; 
and (ii) to new customers upon the opening of an account. 
 
d. AEFA shall devise and implement by December 31, 2005 a policy and set 
of procedures reasonably designed to ensure that AEFA is complying with its 
disclosure obligations under this Order, the federal securities laws and the MSRB 
rules.  The policy and procedures shall also ensure that all statements made on 
AEFA’s public website, in its ADV brochure and in any other documents 
provided to customers comply with this Order, the federal securities laws and the 
MSRB rules and are otherwise not misleading. 
 
e. AEFA shall devise and implement by December 31, 2005 a policy and set 
of procedures to conduct comprehensive reviews of all prospectuses and SAIs 
issued by the Select Group program fund families on a regular basis reasonably 
designed to ensure that AEFA is in compliance with this Order, the federal 
securities laws and the MSRB rules. 
 
f. AEFA shall devise and implement by December 31, 2005 a policy and set 
of procedures for training its financial advisors regarding the disclosure of 
financial incentives that AEFA and its financial advisors receive from each of the 
Select Group program fund families.   
 

 
10
g. At least once every year, starting in 2005, AEFA shall make presentations 
to its Board of Directors (or any committee designated by the Board of Directors 
to perform similar functions) including an overview of AEFA’s revenue sharing 
arrangements, the policies and procedures AEFA is required to devise and 
implement under this Order, any material changes to these policies and 
procedures, the amount of revenue sharing AEFA has received during that year 
and whether AEFA’s receipt and disclosure of revenue sharing payments are in 
compliance with this Order, the federal securities laws and the MSRB rules.  
 
35. Independent Distribution Consultant.  AEFA shall retain, within 60 days of the 
date of entry of this Order, the services of an Independent Distribution Consultant not 
unacceptable to the staff of the Commission.  AEFA shall exclusively bear all costs, 
including compensation and expenses, associated with the retention of the Independent 
Distribution Consultant.  AEFA shall cooperate fully with the Independent Distribution 
Consultant and shall provide the Independent Distribution Consultant with access to its 
files, books, records, and personnel as reasonably requested for his or her review.  AEFA 
shall develop a Distribution Plan for the distribution of all of the disgorgement and civil 
penalties ordered in Section IV.C. below, and any interest or earnings thereon, in 
accordance with a methodology developed in consultation with the Independent 
Distribution Consultant and acceptable to the staff of the Commission.  The Distribution 
Plan shall address how the monetary sums attributable to AEFA’s receipt of revenue 
sharing shall be distributed to benefit customers of AEFA that purchased mutual fund 
families from the Preferred Provider and Select Group programs between January 1, 2001 
and August 31, 2004.   
 
a. AEFA shall submit the Distribution Plan to the Independent Consultant 
and the staff of the Commission no more than 120 days after the date of entry of 
this Order. 
 
b. The Distribution Plan shall be binding unless, within 180 days after the 
date of entry of this Order, the staff of the Commission advises AEFA and the 
Independent Distribution Consultant, in writing, of any determination or 
calculation from the Distribution Plan that it considers to be inappropriate and 
states in writing the reasons for considering such determination or calculation 
inappropriate. 
 
c. With respect to any determination or calculation with which AEFA, the 
Independent Distribution Consultant or the staff of the Commission do not agree, 
such parties shall attempt in good faith to reach an agreement within 210 days of 
the date of entry of this Order.  In the event that AEFA, the Independent 
Distribution Consultant and the staff of the Commission are unable to agree on an 
alternative determination or calculation, the determinations and calculations of the 
Independent Distribution Consultant shall be binding. 
 
d. Within 225 days of the date of entry of this Order, AEFA shall submit the 
Distribution Plan for the administration and distribution of disgorgement and 

 
11
penalty funds pursuant to Rule 1101 [17 C.F.R. § 201.1101] of the Commission’s 
Rules Regarding Disgorgement and Fair Fund Plans.  Following a Commission 
order approving a final plan of disgorgement, as provided in Rule 1104 [17 C.F.R. 
§ 201.1104] of the Commission’s Rules Regarding Disgorgement and Fair Fund 
Plans, AEFA shall require the Independent Distribution Consultant, with AEFA, 
to take all necessary and appropriate steps to administer the final plan for 
distribution of disgorgement and penalty funds. 
 
e. To ensure the independence of the Independent Distribution Consultant, 
AEFA:  (i) shall not have the authority to terminate the Independent Distribution 
Consultant, without the prior written approval of the Commission’s staff; (ii) shall 
compensate the Independent Distribution Consultant and persons engaged to 
assist the Independent Distribution Consultant for services rendered pursuant to 
this Order at their reasonable and customary rates; and (iii) shall not be in and 
shall not have an attorney-client relationship with the Independent Distribution 
Consultant and shall not seek to invoke the attorney-client privilege or any other 
doctrine or privilege to prevent the Independent Distribution Consultant from 
transmitting any information, reports or documents to the Commission or the 
Commission’s staff. 
 
f. AEFA shall require that the Independent Distribution Consultant, for the 
period of the engagement and for a period of two years from completion of the 
engagement, not enter into any employment, consultant, attorney-client, auditing 
or other professional relationship with AEFA, or any of its present or former 
affiliates, parent companies, directors, officers, employees, or agents acting in 
their capacity as such, provided, however, that notwithstanding the foregoing the 
Independent Distribution Consultant may serve as Independent Distribution 
Consultant pursuant to the Order Instituting Administrative and Cease-and-Desist 
Proceedings, Making Findings and Imposing Remedial Sanctions and a Cease-
and-Desist Order in the matter of American Express Financial Corporation.  
AEFA shall require that any firm with which the Independent Distribution 
Consultant is affiliated in performance of his or her duties under the Order not, 
without prior written consent of a majority of the independent Trustees or 
Directors and the staff of the Commission, enter into any employment, consultant, 
attorney-client, auditing or other professional relationship with AEFA, or any of 
its present or former affiliates, parent companies, directors, officers, employees, 
or agents acting in their capacity as such for the period of the engagement and for 
a period of two years after the engagement. 
 
36. For good cause shown, and upon a timely application from AEFA or the 
Independent Distribution Consultant, the Commission’s staff may extend any of the 
procedural dates set forth above.   
 

 
12
IV. 
 
In view of the foregoing, the Commission deems it appropriate and in the public 
interest to impose the sanctions agreed to in AEFA’s Offer. 
 
Accordingly, pursuant to Section 8A of the Securities Act and Sections 15(b) and 
21C of the Exchange Act it is hereby ORDERED that: 
 
A. AEFA is censured. 
 
B. AEFA shall cease and desist from committing or causing any violations and any 
future violations of Section 17(a)(2) of the Securities Act, Section 15B(c)(1) of the 
Exchange Act and Rule 10b-10 thereunder and MSRB Rule G-15. 
 
C. IT IS FURTHER ORDERED that: 
 
1. AEFA shall, within 60 days of the entry of this Order, pay disgorgement 
plus prejudgment interest in the total amount of $15 million (“Disgorgement”).  
AEFA also shall, within 60 days of the entry of this Order, pay a civil monetary 
penalty in the amount of $15 million (“Penalties”).  Such payments shall be: (A) 
made by United States postal money order, certified check, bank cashier's check 
or bank money order; (B) made payable to the Securities and Exchange 
Commission; (C) hand-delivered or mailed to the Office of Financial 
Management, Securities and Exchange Commission, Operations Center, 6432 
General Green Way, Alexandria, Stop 0-3, VA 22312; and (D) submitted under 
cover letter that identifies AEFA as a Respondent in these proceedings, the file 
number of these proceedings, a copy of which cover letter and money order or 
check shall be sent to Merri Jo Gillette, Division of Enforcement, Securities and 
Exchange Commission, 175 West Jackson Blvd., Suite 900, Chicago, Illinois 
60604.  
  
2. There shall be, pursuant to Section 308(a) of the Sarbanes-Oxley Act of 
2002, a Fair Fund established for the funds described in Section C.  Regardless of 
whether any such Fair Fund distribution is made, amounts ordered to be paid as 
Penalties pursuant to this Order shall be treated as penalties paid to the 
government for all purposes, including all tax purposes.  To preserve the deterrent 
effect of the civil penalty, AEFA agrees that it shall not, after offset or reduction 
in any Related Investor Action based on AEFA’s payment of disgorgement in this 
action, further benefit by offset or reduction of any part of AEFA’s payment of 
Penalties in this action (“Penalty Offset”).  If the court in any Related Investor 
Action grants such a Penalty Offset, AEFA agrees that it shall, within 30 days 
after entry of a final order granting the Penalty Offset, notify the Commission’s 
counsel in this action and pay the amount of the Penalty Offset to the United 
States Treasury or to a Fair Fund, as the Commission directs.  Such a payment 
shall not be deemed an additional civil penalty and shall not be deemed to change 
the amount of the Penalties imposed in this proceeding.  For purposes of this 

 
13
paragraph, a “Related Investor Action” means a private damages action brought 
against AEFA by or on behalf of one or more investors based on substantially the 
same facts as alleged in the Order instituted by the Commission in this 
proceeding. 
 
D. AEFA shall comply with the undertakings enumerated in Section III. 34 through 
36. 
 
 
By the Commission. 
 
        
 
 
Jonathan G. Katz 
Secretary 

UNITED STATES OF AMERICA 
Before the 

SECURITIES AND EXCHANGE COMMISSION 
 
SECURITIES ACT OF 1933  
Release No. 8637 / December 1, 2005 
 
SECURITIES EXCHANGE ACT OF 1934 
Release No. 52861 / December 1, 2005 
 
ADMINISTRATIVE PROCEEDING 
FILE NO. 3-12115 
________________________ 
    : 
                            : ORDER INSTITUTING ADMINISTRATIVE 
In the Matter of  : AND CEASE-AND-DESIST PROCEEDINGS, 
    : MAKING FINDINGS, AND IMPOSING 
American Express   : REMEDIAL SANCTIONS AND A CEASE- 
Financial Advisors Inc. : AND-DESIST ORDER PURSUANT TO  
(now known as Ameriprise : SECTION 8A OF THE SECURITIES ACT OF 
Financial Services, Inc.), : 1933 AND SECTIONS 15(b) AND 21C OF THE 
    : SECURITIES EXCHANGE ACT OF 1934 
 Respondent.  :  
________________________: 
 
 

I. 
 
 The Securities and Exchange Commission (“Commission”) deems it appropriate and 
in the public interest that public administrative and cease-and-desist proceedings be, and 
hereby are, instituted pursuant to Section 8A of the Securities Act of 1933 (“Securities Act”) 
and Sections 15(b) and 21C of the Securities Exchange Act of 1934 (“Exchange Act”) 
against American Express Financial Advisors Inc. (now known as Ameriprise Financial 
Services, Inc.) (“AEFA” or “Respondent”). 

 
II. 
 

 In anticipation of the institution of these proceedings, Respondent has submitted 
an Offer of Settlement (the “Offer”) which the Commission has determined to accept.  
Solely for the purpose of these proceedings and any other proceedings brought by or on 
behalf of the Commission, or to which the Commission is a party, and without admitting 
or denying the findings herein, except as to the Commission’s jurisdiction over it and the 
subject matter of these proceedings, Respondent consents to the entry of this Order 
Instituting Administrative and Cease-and-Desist Proceedings, Making Findings, and 
Imposing Remedial Sanctions and a Cease-and-Desist Order Pursuant to Section 8A of 



 2

the Securities Act and Sections 15(b) and 21C of the Exchange Act (“Order”), as set forth 
below. 

 
III. 

 
 On the basis of this Order and Respondent’s Offer, the Commission finds1 that:  
 

Respondent 
 
1. AEFA2, now known as Ameriprise Financial Services, Inc., is a Delaware 
corporation with headquarters located in Minneapolis, MN.  AEFA has been registered 
with the Commission as a broker-dealer since 1971 and as an investment adviser since 
1979.  At all relevant times, AEFA has been a subsidiary of American Express Financial 
Corporation, now known as Ameriprise Financial, Inc.  AEFA has over 10,000 registered 
representatives whom it calls “financial advisors” and more than 3,750 branch offices 
across the United States.  AEFA operates the majority of its branch offices pursuant to 
franchise agreements.   
  

Background 
 
2. This matter arises from AEFA’s failure to adequately disclose certain material 
facts to its brokerage customers in the offer and sale of mutual fund shares and interests 
in college savings plans established under Section 529 of the Internal Revenue Code 
(“529 plans”).  Specifically, AEFA did not adequately disclose to its brokerage customers 
information concerning revenue sharing agreements it had with certain mutual fund 
families.   
 
3. Between January 2001 and August 2004, AEFA did not adequately disclose 
material information concerning its conflicts of interest in offering and selling shares of 
twenty-seven preferred mutual fund families whose affiliates made revenue sharing 
payments to AEFA in exchange for, among other things, inclusion on AEFA’s brokerage 
platform.  Between April 2003 and August 2004, AEFA’s disclosures concerning these 
conflicts improved, but were still deficient in certain respects.  From October 2003 to the 
present, AEFA also has not adequately disclosed certain material facts about its conflicts 
of interest in the offer and sale of interests in nine 529 plans concerning revenue sharing 
payments made to AEFA by affiliates of the nine fund families that administered the 529 
plans.    
 

AEFA’s Revenue Sharing Agreements 
 
4. In approximately January 2001, AEFA created its Preferred Provider program 
which it used to promote twenty-seven mutual fund families.  AEFA received substantial 

                                                 
1 The findings herein are made pursuant to Respondent’s Offer of Settlement and are not binding on any 
other person or entity in this or any other proceeding. 
2 As used herein, the name “AEFA” refers to American Express Financial Advisors Inc. and all predecessor 
and successor entities, including Ameriprise Financial Services, Inc. 



 3

payments, in the form of cash or “hard dollars,” paid directly from advisers or distributors 
affiliated with mutual fund companies.  AEFA also received substantial payments in the 
form of directed brokerage commissions for distribution of mutual fund shares through 
“step-out” arrangements.  In these instances, the advisers or distributors of certain mutual 
fund families instructed the brokerage firm or firms executing portfolio transactions for 
their mutual funds to “step out” of the transactions and direct a portion of the 
commissions for the transactions to AEFA for distribution of fund shares. 
 
5. In June 2003, AEFA replaced the Preferred Provider program with the Select 
Group program through which it continued to receive substantial revenue sharing 
payments from affiliates of 29 mutual fund families. 
 
6.  Between January 2001 and the present, AEFA has received tens of millions of 
dollars each year in cash and non-cash revenue sharing payments from affiliates of the 
mutual fund families participating in the Preferred Provider and Select Group programs. 
These payments are in addition to standard sales loads, commissions, Rule 12b-1 fees, 
expense reimbursements and other fees for maintaining customer account information.  
Historically, with one exception, the fund families offered by AEFA through its 
brokerage platform have been either proprietary funds or funds of mutual fund families 
whose affiliates made revenue sharing payments to AEFA.   

 
The Preferred Provider Program 

 
7. In January 2001, AEFA created the Preferred Provider program, which was 
designed to promote the sale of preferred mutual fund families.  AEFA required these 
mutual fund families to pay revenue sharing in order to gain access to the benefits of the 
Preferred Provider program.  With the exception of one outside fund family and the AXP 
Funds, AEFA offered on its brokerage platform only mutual fund families whose 
affiliates paid revenue sharing.  
 
8. The Preferred Provider program consisted of three sub-programs:  (1) Strategic 
Partner program; (2) Preferred Partner program; and (3) Other Partner program.  AEFA 
defined the Strategic Partners as mutual fund families whose affiliates paid maximum 
revenue sharing, provided marketing support to AEFA’s financial advisors and agreed to 
distribute AEFA products on their distribution channels.  AEFA defined the Preferred 
Partners as mutual fund families whose affiliates paid maximum revenue sharing, 
provided marketing support to AEFA’s financial advisors, offered a broad range of 
mutual funds and had “good performance” ratings.  Finally, AEFA defined the Other 
Partners as mutual fund families whose affiliates paid some revenue sharing, but received 
no special access to AEFA’s financial advisors.   
 
9. For participation in the Preferred Provider program, AEFA required affiliates of 
the Strategic Partner and Preferred Partner mutual fund families to pay average revenue 
sharing at a target level of 15 basis points (“bps”)3 calculated as a percentage of a 
particular fund family’s total assets.  AEFA required affiliates of the Other Partner 
                                                 
3 A “basis point” is one one-hundredth of one percent.   



 4

mutual fund families to pay average revenue sharing at a target level of 10 bps on total 
assets.  At the request of the fund families, AEFA accepted the payment of directed 
brokerage commissions through “step-outs” from several mutual fund families that 
participated in the program in satisfaction of all or a portion of their revenue sharing 
obligations.  
 
10. AEFA offered several benefits and incentives to the mutual fund families that 
participated in the Preferred Provider program.  AEFA allowed both the Strategic Partner 
and Preferred Partner fund families to contact AEFA’s financial advisors through e-mail, 
telephone, private meetings and the distribution of sales literature.  On occasion, affiliates 
of the Preferred Partner and Strategic Partner fund families paid for certain of the 
financial advisors’ marketing costs by co-sponsoring client marketing events for AEFA’s 
brokerage customers.  AEFA also gave the Strategic Partners and Preferred Partners 
exclusive access to its financial advisors at conferences.  At these conferences, Strategic 
Partner and Preferred Partner mutual fund families provided speakers who interacted with 
AEFA’s financial advisors and provided training on their products and investment 
strategies.   

 
The Select Group Program 

 
11. In June 2003, AEFA replaced the Preferred Provider program with the Select 
Group program, which is currently operating.  The Select Group program consists of 
three sub-programs:  (1) Select Group; (2) Associate Group; and (3) Other Group.  
Similar to the Preferred Provider program, with the exception of one outside fund family 
and AXP Funds, AEFA exclusively offers and sells mutual fund families on its brokerage 
platform whose affiliates pay revenue sharing as part of the Select Group program.   
 
12. The Select Group consists of eleven non-proprietary fund families and the AXP 
Funds.  In exchange for receiving revenue sharing payments at a target level of 25 bps on 
sales and 20 bps on assets as a percentage of total assets, AEFA gives members of the 
Select Group preferential marketing treatment. 
 
13. AEFA permits participating fund families in the Select Group to contact and 
distribute sales literature to AEFA’s financial advisors and participate in AEFA’s 
conferences.  AEFA also gives the Select Group fund families the opportunity to invite 
financial advisors to their due diligence meetings.  Similar to the Preferred Provider 
program fund families, on occasion, affiliates of the Select Group fund families pay for 
certain of the financial advisors’ marketing costs by co-sponsoring client marketing 
events for AEFA’s brokerage customers.   
 
14. The Associate Group consists of nine fund families whose affiliates make revenue 
sharing payments at a target level of 15 bps on assets as a percentage of total assets.  
AEFA receives lower revenue sharing on behalf of the Associate Group members than on 
behalf of Select Group members, and in return gives them less marketing access and 
visibility with AEFA’s financial advisors.   
 



 5

15. AEFA provides the Associate Group with access to its financial advisors, 
authorizes the Associate Group to contact and distribute sales literature to AEFA’s 
financial advisors and permits the Associate Group to participate in AEFA’s conferences.   
 
16. AEFA collects from affiliates of the Other Group mutual fund families revenue 
sharing payments at a target level of approximately 10 bps on assets as a percentage of 
total assets.  AEFA does not provide the Other Group with preferential marketing 
treatment.   
 

Financial Incentives Received By AEFA, Its Employees  
And Its Financial Advisors 

  
17. AEFA provided financial incentives to its financial advisors to promote the sale of 
fund families that participated in the Preferred and Select Group programs over other 
mutual fund families whose affiliates did not pay revenue sharing, primarily through the 
reduction of ticket charges to the financial advisors for sales of the participating fund 
families.    
 
18. Beginning in the fall of 2000, AEFA started requiring many of its financial 
advisors to pay ticket charges for sales of non-proprietary mutual fund transactions.  
These ticket charges ranged from $15 to $85 per transaction for sales of non-proprietary 
mutual funds.4  From this time through June 30, 2003, AEFA did not assess ticket 
charges on sales of its proprietary funds.  Starting in January 2001, AEFA waived 
portions of the ticket charges for all fund families participating in the Preferred Provider 
program.  From January 1, 2001 to June 30, 2003, AEFA waived several million dollars 
in ticket charge expenses for the sale of Preferred and Strategic Partner fund families.  
 
19.  In addition, in approximately August 2002, AEFA offered the fund families 
participating in its Preferred Provider program the opportunity to subsidize financial 
advisors’ ticket charges for sales of their mutual funds.  Affiliates of two fund families 
agreed to subsidize ticket charges relating to all sales of their mutual funds.  At this time, 
sales of these two fund families significantly increased.  The affiliates of these two fund 
families stopped subsidizing ticket charges for sales of their mutual funds in June 2003 
when the Select Group program was formed.   
 
20. Beginning with the creation of the Select Group program in June 2003, AEFA, 
pursuant to the terms of the Select Group program agreements, began waiving or 
reducing ticket charges in connection with certain transactions.   
 
21. Ticket charges under both the Preferred Provider and Select Group programs 
promoted the sale of mutual fund families whose affiliates paid the highest revenue 
sharing.  Affiliates of the Preferred Provider and Select Group fund families paid the 
highest revenue sharing and thus these fund families received the benefit of the lowest 
ticket charges per transaction.      
                                                 
4 For systematic investments, AEFA’s ticket charges were significantly lower, starting at $2.50 per 
transaction. 



 6

 
22. AEFA also imposed higher ticket charges for sales of fund families whose 
affiliates did not pay revenue sharing.  For example, in 2002, AEFA increased the ticket 
charges for transactions in one non-proprietary fund family whose affiliates did not pay 
cash or non-cash revenue sharing by increasing the ticket charge for transactions in this 
fund family to $85 per transaction.  Historically, this fund family was one of the top 
selling non-proprietary fund families at AEFA.  Although AEFA disclosed that it may 
charge its financial advisors between $0 and $85 per transaction, AEFA did not disclose 
that only sales of this particular fund family were subject to a ticket charge as high as 
$85.  After AEFA increased the ticket charge on this fund family, its sales significantly 
decreased. 

 
AEFA Did Not Adequately Disclose Its Revenue Sharing Programs To Its 

Customers 
 
23. AEFA did not make adequate disclosures to its brokerage customers relating to its 
receipt of revenue sharing payments from the inception of the program through 
approximately August 2004.  Instead, AEFA relied on incomplete disclosures in its 
brokerage application, in some of its brochures and in the prospectuses and Statements of 
Additional Information (“SAIs”) of the mutual fund families that participated in the 
Preferred Provider and Select Group programs to disclose its revenue sharing practices.  
Although the mutual fund families’ prospectuses and SAIs contained various disclosures 
concerning payments to broker-dealers distributing their funds, many of these documents 
did not adequately disclose the source and the amount of the revenue sharing payments to 
AEFA and the dimensions of the resulting conflicts of interest.   
 
24. None of the disclosures made by the participating mutual fund families indicated 
that many of AEFA’s financial advisors were given financial incentives of paying 
reduced or no ticket charges for the sale of Preferred, Strategic, Select and Associate fund 
families at AEFA or that those financial advisors did not receive similar incentives for the 
sales of fund families that did not pay revenue sharing. 
 
25. Moreover, these disclosures did not disclose the conflict of interest created by 
AEFA’s selection of mutual fund families for participation in its distribution system 
based in part on the financial incentives provided to AEFA, including in some cases, the 
receipt of payments for distribution of fund shares through “step-outs.”  Until 2004, none 
of AEFA’s disclosures adequately described the conflict of interest created by the varying 
levels of access that fund families had to AEFA’s distribution system, based in part on 
the varying levels of revenue sharing paid on behalf of these preferred fund families.   
 
26. In April 2003, AEFA began disclosing that it assessed different ticket charges to 
different classes of mutual fund families in its financial advisory services brochure 
(“ADV Brochure”).  AEFA also began disclosing in its ADV Brochure that AEFA’s 
financial advisors have financial incentives for selling certain select mutual funds, 
including paying different or no ticket charges for sales of certain mutual funds and the 
general ranges of the ticket charges.  Prior to this disclosure, AEFA did not disclose 



 7

AEFA’s and its financial advisors’ conflicts of interests related to sales of certain mutual 
fund families.     
 
27. In August 2003, with the implementation of the Select Group program, AEFA 
disclosed in its brokerage applications that, in exchange for certain benefits, such as 
broader access to AEFA’s financial advisors, affiliates of certain fund families in the 
Select Group program are required to pay AEFA for participation in the program by 
sharing with AEFA a portion of the revenue generated from the sales of fund shares.  
AEFA also disclosed that certain fund families in the Select Group program have the 
ability to provide AEFA’s financial advisors with educational and training materials and 
sales and product support and that ticket charges may be eliminated on sales of certain 
funds participating in the Select Group program.  AEFA disclosed that these factors may 
lead a financial advisor to recommend a fund family from the Select Group over another 
fund family.  However, AEFA did not disclose that it received significant amounts of 
revenue sharing payments on behalf of the Associate Group or the Other Group or the 
source and amount of the payments made on behalf of any fund families participating in 
the Select Group program.   
 
28. In April 2004, AEFA further expanded the disclosures in one of its brochures, 
“An Investor’s Guide to Purchasing Mutual Funds Through American Express Financial 
Advisors,” to list all of the mutual fund families on behalf of whom AEFA received 
revenue sharing payments, including the Select Group, Associate Group and Other Group 
fund families, and the maximum amount of revenue sharing AEFA received on behalf of 
these fund families.  In August 2004, AEFA disclosed all of this information in its ADV 
Brochure, brokerage application, brokerage customer account statements and 
confirmations. 
 

AEFA’s 529 College Savings Plan Sales And Disclosures 
 

29. Since 2001, AEFA has offered and sold interests in 529 college savings plans to 
its customers.  Offers and sales of interests in 529 plans are municipal securities 
transactions.   
 
30. AEFA currently has selling agreements with 9 mutual fund companies to sell 
interests in 529 plans that they administer.  AEFA promotes only the 529 plans of the 
Select Group program fund families that offer 529 plans and whose affiliates pay AEFA 
revenue sharing.   
 
31. From October 2003 to the present, AEFA has not disclosed in confirmations of its 
sales of interests in 529 plans, the revenue sharing payments that AEFA receives from the 
sale of 529 plans.  Starting in November 2004, AEFA began disclosing the financial 
incentives it receives from the sale of interests in 529 plans in its brochure An Investor’s 
Guide to Purchasing 529 Plans Through AEFA Financial Advisors.   
 



 8

32. Based on the conduct described above, AEFA willfully5 violated: 
 

a. Section 17(a)(2) of the Securities Act, which provides that it is “unlawful 
for any person in the offer or sale of any securities . . . by the use of any means or 
instruments of transportation or communication in interstate commerce or by use 
of the mails, directly or indirectly . . . to obtain money or property by means of 
any untrue statement of a material fact or any omission to state a material fact 
necessary in order to make the statements made, in light of the circumstances 
under which they were made, not misleading;”  
 
b. Rule 10b-10 under the Exchange Act, which provides in pertinent part that 
it is “unlawful for any broker or dealer to effect for or with an account of a 
customer any transaction in, or to induce the purchase or sale by such customer 
of, any security . . . unless such broker or dealer, at or before completion of such 
transaction, gives or sends to such customer written notification disclosing . . . the 
source and amount of any other remuneration received or to be received by the 
broker in connection with the transaction;” and 
 
c. Section 15B(c)(1) of the Exchange Act, which provides that “[n]o broker, 
dealer, or municipal securities dealer shall make use of the mails or any means or 
instrumentality of interstate commerce to effect any transaction in, or to induce or 
attempt to induce the purchase or sale of, any municipal security in contravention 
of any rule of the [Municipal Securities Rulemaking] Board.” 

 
33. By virtue of its sales of interests in 529 college savings plans, as described above, 
AEFA violated Municipal Securities Rulemaking Board (“MSRB”) Rule G-15, which 
requires a broker or dealer to send or give a written confirmation to its customer, at or 
before the completion of a municipal securities transaction, that discloses, among other 
things, either: “(A) the source and amount of any remuneration received or to be received 
. . . by the broker [or] dealer . . . in connection with the transaction from any person other 
than the customer, or (B) a statement indicating whether any such remuneration has been 
or will be received and that the source and amount of such other remuneration will be 
furnished upon written request of the customer.”  
 

Undertakings 
 
34. AEFA undertakes the following6: 
 

a. AEFA shall place and maintain on the mutual fund page of its public 
website within 15 days of the date of entry of this Order disclosures regarding its 
Select Group program to include:  (i) the existence of the program; (ii) the mutual 

                                                 
5 “Willfully” as used in this Order means intentionally committing the act which constitutes the violations.  
See Wonsover v. SEC, 205 F.3d 408, 414 (D.C. Cir. 2000); Tager v. SEC, 344 F.2d 5, 8 (2d Cir. 1965).  
There is no requirement that the actor also be aware that he is violating one of the Rules or Acts. 
6 The undertakings and sanctions set forth herein shall be binding upon all successors to Respondent, and 
any affiliate of Respondent to the extent the matters described herein (including the disclosure or collection 
of revenue sharing payments for Respondent) are delegated to such affiliate.   



 9

fund families participating in the program; (iii) the amount of revenue sharing 
payments that AEFA receives from each of the program’s fund families in 
connection with the fund families’ participation in the program based on a 
reasonable estimate from historical experience, expressed in basis points or 
dollars; (iv) the total amount of revenue sharing payments (expressed in dollars) 
that AEFA receives annually, starting with the amount received in 2004 and 
updated each year thereafter; and (v) the source of such payments (fund assets, 
adviser, distributor, underwriter, etc.). 
 
b. AEFA shall place and maintain on the college savings program portion of 
its public website within 15 days of the date of entry of this Order disclosures 
regarding its Select Group program to include:  (i) the existence of the program; 
(ii) an identification of the Select Group program fund families that pay AEFA 
revenue sharing for sales of 529 plans; (iii) the amount of revenue sharing 
payments that AEFA receives from each of these fund families based on a 
reasonable estimate from historical experience, expressed in basis points or 
dollars; (iv) the total amount of revenue sharing payments (expressed in dollars) 
that AEFA receives annually, starting with the amount received in 2004 and 
updated each year thereafter; and (v) the source of such payments (fund assets, 
adviser, distributor, underwriter, etc.). 

 
c. AEFA shall send the information contained in paragraphs a. and b. above:  
(i) to its current customers beginning 120 days following the date of entry of this 
Order in the customers’ next statement issued by AEFA, or in a stand-alone 
mailing to 529 plan customers for whom AEFA does not send regular statements; 
and (ii) to new customers upon the opening of an account. 

 
d. AEFA shall devise and implement by December 31, 2005 a policy and set 
of procedures reasonably designed to ensure that AEFA is complying with its 
disclosure obligations under this Order, the federal securities laws and the MSRB 
rules.  The policy and procedures shall also ensure that all statements made on 
AEFA’s public website, in its ADV brochure and in any other documents 
provided to customers comply with this Order, the federal securities laws and the 
MSRB rules and are otherwise not misleading. 

 
e. AEFA shall devise and implement by December 31, 2005 a policy and set 
of procedures to conduct comprehensive reviews of all prospectuses and SAIs 
issued by the Select Group program fund families on a regular basis reasonably 
designed to ensure that AEFA is in compliance with this Order, the federal 
securities laws and the MSRB rules. 

 
f. AEFA shall devise and implement by December 31, 2005 a policy and set 
of procedures for training its financial advisors regarding the disclosure of 
financial incentives that AEFA and its financial advisors receive from each of the 
Select Group program fund families.   
 



 10

g. At least once every year, starting in 2005, AEFA shall make presentations 
to its Board of Directors (or any committee designated by the Board of Directors 
to perform similar functions) including an overview of AEFA’s revenue sharing 
arrangements, the policies and procedures AEFA is required to devise and 
implement under this Order, any material changes to these policies and 
procedures, the amount of revenue sharing AEFA has received during that year 
and whether AEFA’s receipt and disclosure of revenue sharing payments are in 
compliance with this Order, the federal securities laws and the MSRB rules.  

 
35. Independent Distribution Consultant.  AEFA shall retain, within 60 days of the 
date of entry of this Order, the services of an Independent Distribution Consultant not 
unacceptable to the staff of the Commission.  AEFA shall exclusively bear all costs, 
including compensation and expenses, associated with the retention of the Independent 
Distribution Consultant.  AEFA shall cooperate fully with the Independent Distribution 
Consultant and shall provide the Independent Distribution Consultant with access to its 
files, books, records, and personnel as reasonably requested for his or her review.  AEFA 
shall develop a Distribution Plan for the distribution of all of the disgorgement and civil 
penalties ordered in Section IV.C. below, and any interest or earnings thereon, in 
accordance with a methodology developed in consultation with the Independent 
Distribution Consultant and acceptable to the staff of the Commission.  The Distribution 
Plan shall address how the monetary sums attributable to AEFA’s receipt of revenue 
sharing shall be distributed to benefit customers of AEFA that purchased mutual fund 
families from the Preferred Provider and Select Group programs between January 1, 2001 
and August 31, 2004.   
 

a. AEFA shall submit the Distribution Plan to the Independent Consultant 
and the staff of the Commission no more than 120 days after the date of entry of 
this Order. 

 
b. The Distribution Plan shall be binding unless, within 180 days after the 
date of entry of this Order, the staff of the Commission advises AEFA and the 
Independent Distribution Consultant, in writing, of any determination or 
calculation from the Distribution Plan that it considers to be inappropriate and 
states in writing the reasons for considering such determination or calculation 
inappropriate. 

 
c. With respect to any determination or calculation with which AEFA, the 
Independent Distribution Consultant or the staff of the Commission do not agree, 
such parties shall attempt in good faith to reach an agreement within 210 days of 
the date of entry of this Order.  In the event that AEFA, the Independent 
Distribution Consultant and the staff of the Commission are unable to agree on an 
alternative determination or calculation, the determinations and calculations of the 
Independent Distribution Consultant shall be binding. 

 
d. Within 225 days of the date of entry of this Order, AEFA shall submit the 
Distribution Plan for the administration and distribution of disgorgement and 



 11

penalty funds pursuant to Rule 1101 [17 C.F.R. § 201.1101] of the Commission’s 
Rules Regarding Disgorgement and Fair Fund Plans.  Following a Commission 
order approving a final plan of disgorgement, as provided in Rule 1104 [17 C.F.R. 
§ 201.1104] of the Commission’s Rules Regarding Disgorgement and Fair Fund 
Plans, AEFA shall require the Independent Distribution Consultant, with AEFA, 
to take all necessary and appropriate steps to administer the final plan for 
distribution of disgorgement and penalty funds. 

 
e. To ensure the independence of the Independent Distribution Consultant, 
AEFA:  (i) shall not have the authority to terminate the Independent Distribution 
Consultant, without the prior written approval of the Commission’s staff; (ii) shall 
compensate the Independent Distribution Consultant and persons engaged to 
assist the Independent Distribution Consultant for services rendered pursuant to 
this Order at their reasonable and customary rates; and (iii) shall not be in and 
shall not have an attorney-client relationship with the Independent Distribution 
Consultant and shall not seek to invoke the attorney-client privilege or any other 
doctrine or privilege to prevent the Independent Distribution Consultant from 
transmitting any information, reports or documents to the Commission or the 
Commission’s staff. 

 
f. AEFA shall require that the Independent Distribution Consultant, for the 
period of the engagement and for a period of two years from completion of the 
engagement, not enter into any employment, consultant, attorney-client, auditing 
or other professional relationship with AEFA, or any of its present or former 
affiliates, parent companies, directors, officers, employees, or agents acting in 
their capacity as such, provided, however, that notwithstanding the foregoing the 
Independent Distribution Consultant may serve as Independent Distribution 
Consultant pursuant to the Order Instituting Administrative and Cease-and-Desist 
Proceedings, Making Findings and Imposing Remedial Sanctions and a Cease-
and-Desist Order in the matter of American Express Financial Corporation.  
AEFA shall require that any firm with which the Independent Distribution 
Consultant is affiliated in performance of his or her duties under the Order not, 
without prior written consent of a majority of the independent Trustees or 
Directors and the staff of the Commission, enter into any employment, consultant, 
attorney-client, auditing or other professional relationship with AEFA, or any of 
its present or former affiliates, parent companies, directors, officers, employees, 
or agents acting in their capacity as such for the period of the engagement and for 
a period of two years after the engagement. 

 
36. For good cause shown, and upon a timely application from AEFA or the 
Independent Distribution Consultant, the Commission’s staff may extend any of the 
procedural dates set forth above.   

 



 12

IV. 
 

In view of the foregoing, the Commission deems it appropriate and in the public 
interest to impose the sanctions agreed to in AEFA’s Offer. 
 

Accordingly, pursuant to Section 8A of the Securities Act and Sections 15(b) and 
21C of the Exchange Act it is hereby ORDERED that: 
 
A. AEFA is censured. 
 
B. AEFA shall cease and desist from committing or causing any violations and any 
future violations of Section 17(a)(2) of the Securities Act, Section 15B(c)(1) of the 
Exchange Act and Rule 10b-10 thereunder and MSRB Rule G-15. 
 
C. IT IS FURTHER ORDERED that: 
 

1. AEFA shall, within 60 days of the entry of this Order, pay disgorgement 
plus prejudgment interest in the total amount of $15 million (“Disgorgement”).  
AEFA also shall, within 60 days of the entry of this Order, pay a civil monetary 
penalty in the amount of $15 million (“Penalties”).  Such payments shall be: (A) 
made by United States postal money order, certified check, bank cashier's check 
or bank money order; (B) made payable to the Securities and Exchange 
Commission; (C) hand-delivered or mailed to the Office of Financial 
Management, Securities and Exchange Commission, Operations Center, 6432 
General Green Way, Alexandria, Stop 0-3, VA 22312; and (D) submitted under 
cover letter that identifies AEFA as a Respondent in these proceedings, the file 
number of these proceedings, a copy of which cover letter and money order or 
check shall be sent to Merri Jo Gillette, Division of Enforcement, Securities and 
Exchange Commission, 175 West Jackson Blvd., Suite 900, Chicago, Illinois 
60604.  

  
2. There shall be, pursuant to Section 308(a) of the Sarbanes-Oxley Act of 
2002, a Fair Fund established for the funds described in Section C.  Regardless of 
whether any such Fair Fund distribution is made, amounts ordered to be paid as 
Penalties pursuant to this Order shall be treated as penalties paid to the 
government for all purposes, including all tax purposes.  To preserve the deterrent 
effect of the civil penalty, AEFA agrees that it shall not, after offset or reduction 
in any Related Investor Action based on AEFA’s payment of disgorgement in this 
action, further benefit by offset or reduction of any part of AEFA’s payment of 
Penalties in this action (“Penalty Offset”).  If the court in any Related Investor 
Action grants such a Penalty Offset, AEFA agrees that it shall, within 30 days 
after entry of a final order granting the Penalty Offset, notify the Commission’s 
counsel in this action and pay the amount of the Penalty Offset to the United 
States Treasury or to a Fair Fund, as the Commission directs.  Such a payment 
shall not be deemed an additional civil penalty and shall not be deemed to change 
the amount of the Penalties imposed in this proceeding.  For purposes of this 



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paragraph, a “Related Investor Action” means a private damages action brought 
against AEFA by or on behalf of one or more investors based on substantially the 
same facts as alleged in the Order instituted by the Commission in this 
proceeding. 

 
D. AEFA shall comply with the undertakings enumerated in Section III. 34 through 
36. 
 
 

By the Commission. 
 
        
 
 

Jonathan G. Katz 
Secretary