By Ann C. Logue
One of the many institutions name-checked in Inventing Anna, the Netflix story of fake German heiress Anna Sorokin, is City National. The Los Angeles bank is part of the Royal Bank of Canada empire. It caters to Hollywood movers and shakers, so it fit with Sorokin’s vibe/con. She applied for a $22 million loan from City National for the club that she wanted to open, but the application was rejected. Instead, she received a $100,000 overdraft facility that she drew down. Ultimately, Sorokin was found not guilty of an attempt to defraud City National based on the loan application, but she was found guilty of grand larceny for the $100,000 line and has been ordered to repay it.
In 2012, when Anna Sorokin was attending art school in London, City National acquired Rochdale Investment Management. The New York-based firm provide money management services to wealthy individuals, in most cases through their accountants and attorneys. This week, the SEC announced that City National Rochdale would pay $30 million to settle charges of ignoring conflicts of interest when making recommendations to clients.
City National Rochdale has discretionary authority over client accounts, which is typical for ultra-high net worth money managers. The firm used this to invest client funds in proprietary mutual funds that generate fees for CNR and its affiliates, without notifying customers of the arrangement, rather than opting for Vanguard, DFA, or the other low-cost managers popular with wealth advisors. In addition, clients who opened accounts with certain CNR affiliates did not pay 12b-1 fees, but those who invested with CNR through their own financial advisors did.
Low-dollar retail customers often get stuck with high percentage-based fees, including 12b-1 charges, because their accounts are too small to cover the services of fee-based financial advisors. One of the benefits of being really rich is that you can fairly compensate your money managers without having to overpay as a percentage of money invested.
The $30 million fine will to compensate the affected investors. Lucky for them, City National is good for the money. Anna Sorokin probably isn’t.
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