The excess should be removed to avoid penalties. Unless the plan sponsor is paying the compliance penalty then the funds can remain in the SEP account, which generally is not the case.
What may have been intended by the financial rep's suggestion is that instead of returning the excess contribution back to you, the excess funds can be removed from the SEP and be deposited into a Traditional IRA. This may also count as a deductible contribution for you.
Click this IRS link for more information: https://www.irs.gov/retirement-plans/sep-fix-it-guide-contributions-to-the-sep-ira-exceeded-the-maxi...
