The Securities and Exchange Commission is reviewing whether conflicts of interest led JPMorgan Chase & Co. (JPM) to sell certain investment products to individual clients, according to a person briefed on the matter.
The review is at an early stage, said the person, who asked to remain anonymous because the inquiry isn’t public. The Wall Street Journal, in a report on the review earlier today, said the Office of the Comptroller of the Currency has conducted a similar probe into whether JPMorgan inappropriately steered private-banking clients into its own products.
Banks can capture a greater portion of fees by having clients invest in their own products. In some cases, they can also offer better-than-average performance. New York-based JPMorgan said in February that 80 percent of its fixed-income assets under management and 81 percent of its equity assets were in funds that were in the top 40 percent of peers over the previous 10 years.
“We manage a variety of portfolios based on a client’s investment objectives, and the mix of solutions varies, is dynamic and transparent,” said Darin Oduyoye, a JPMorgan spokesman. “Our clients have countless options in selecting financial providers. They come to JPMorgan because of our long-term investments track record and the depth and breadth of our platform.”
Private banking, which caters to wealthy individual clients, generated more than half of JPMorgan’s $5.73 billion in asset-management revenue in the first six months of this year. The unit accounted for $383 billion in assets under management, or 22 percent of the division’s $1.7 trillion total.
JPMorgan’s asset-management business, led by Mary Callahan Erdoes, generated $993 million of net income in the first half of 2014, the lowest among the largest U.S. bank’s four major divisions. The unit’s 22 percent return on equity was the highest of the four.
JPMorgan set aside $669 million for legal expenses in the second quarter. The lender agreed to pay $23 billion in penalties and settlements last year, leading to its first quarterly loss under Chief Executive Officer Jamie Dimon.