$6M SEC Penalty for RIA and BD Conflict Disclosure Violations
SEC Releases
Introduction
On August 29, 2025, the SEC charged another RIA ($159 Billion AUM) over $5 Million and its affiliated Broker/Dealer $750,000 for failing to adequately disclose conflicts of interest to Retirement Plan Participants regarding their Managed Account Service.
Violations That Occurred
The SEC’s findings reveal the following key violations:
1. Incentive-Based Conflicts Not Disclosed
- From July 2019 through December 2022, Retirement Plan Advisors who served dual roles as Registered Representatives and Investment Adviser Representatives (IARs) were financially incentivized with bonuses and merit raises to enroll clients in the Firm’s Managed Account Service. These incentives presented a clear conflict of interest, which was not fully disclosed.
2. Misleading Verbal and Written Communications
- Retirement Plan Advisors often misrepresented themselves as salaried and/or noncommissioned, or fiduciaries acting in the Plan Participants’ best interest, without informing Plan Participants about the underlying financial incentives influencing their recommendations.
3. Inadequate Written Disclosures
- For the separate RIA, their ADV Part 2A Brochure in 2019 disclosed in vague terms that some employees “will have an opportunity to earn bonus compensation.”
- In 2020, that was changed to “may be indirectly compensated”, a minimization of the actual conflict.
- Despite a more detailed explanation in 2021, the separate RIA still failed to state plainly that Retirement Plan Advisors had direct incentives tied to managed account enrollments. Summary disclosures remained vague and continued to mislead.
4. Lack of Policies and Procedures
- The separate Broker/Dealer did not implement adequate written policies or procedures reasonably designed to identify or address these conflicts of interest.
How This Can Be Prevented
To avoid similar violations, Firms should adhere to the following best practices:
1. Full, Clear, and Specific Disclosures
- Avoid vague phrasing like “may be indirectly compensated.”
- Clearly disclose that Advisors receive bonuses tied to promoting particular services and how these incentives could influence recommendations.
- Explain Advisor capacity, whether they are acting as fiduciaries or brokers, so Plan Participants can make truly informed decisions.
2. Verbal Messaging Must Be Accurate
- Ensure verbal communications accurately reflect disclosed conflicts. Avoid giving statements that imply pure fiduciary status if advisors are financially motivated to recommend certain services.
3. Tailored Policies and Procedures
- Develop and maintain policies specifically designed to identify, manage, and mitigate conflicts of interest.
- Include on-going training and supervisory oversight to ensure adherence and consistency across the advisory workforce.
4. Regular Review and Testing
- Conduct periodic audits of both disclosures and advisor communications.
- Test whether written and verbal messaging aligns with actual compensation practices and advisor behaviors.
- Update disclosures promptly when compensation structures or products change.
5. Embrace Transparency
- Emphasize a culture of transparency in client-facing materials.
- Use plain language disclosures, understandable even to non-expert Plan Participants.
Vigilant’s Conclusion
This SEC action marks yet another enforcement effort centered on failures in disclosing conflicts of interest, joining a series of recent actions targeting such shortcomings. Transparency in advisory relationships remains a top regulatory priority.
Vigilant, through its Compliance Services, can play a pivotal role in helping firms address these vulnerabilities by offering:
- Expert policy design that aligns with both Investment Advisers Act and Regulation Best Interest standards.
- Review and refinement of disclosures, ensuring they are full, fair, and understandable to retail participants.
- Training programs to ensure that advisors’ verbal messaging reflects written disclosures and compliance intent.
- On-going monitoring and audits, including surprise checks and remediation exercises, to detect and rectify potential gaps before they escalate.
By integrating Vigilant Compliance’s services, Firms can foster a culture of transparency, reinforce fiduciary integrity, and help reduce the risk of enforcement, ultimately protecting their clients and their reputation.