Published on Oct 13th, 2023 |

Duty of Care and Disclosure Violations | $1.3 Million SEC Charge

SEC Releases

Introduction

On October 10th, the SEC charged an RIA for breaching its fiduciary duties.

The Firm failed to properly disclosure conflicts of interests through its use of a partnered clearing Firm, violating their duty to seek best execution in the process.

They have agreed to pay disgorgement of $999,559 with prejudgment interest of $77,588 and a civil penalty of $250,000.

What Happened?

What Happened?

According to the SEC:

  • The RIA offered a wrap program to advisory clients among other services.
  • Any trading costs, including transaction fees on mutual fund investments, were the responsibility of the RIA as part of the wrap program.
  • The RIA also participated in a no-transaction fee program offered by its clearing Firm.
  • Clients were suggested to invest in higher-cost mutual fund share classes with the clearing Firm instead of lower-cost share classes of the same funds with a transaction fee.
  • Some existing assets were transferred into similar investments that had higher expenses but also avoided transaction fees.
  • Clients were not provided proper disclosure about the conflicts of interest involved with their program.
  • The RIA also violated its duty to find best execution by choosing more expensive assets when better priced similar securities were available.

Vigilant's Conclusion

Vigilant’s Conclusion

Proper compliance policies and procedures reasonably designed to prevent compliance violations are a necessity in this regulatory climate.

Firms should ensure that they properly supervise the investment suggestions of their advisers.

Compliance professionals with decades of combined industry experience can help assess whether your policies and procedures are current with industry standards, and whether they would hold up to an SEC Examination.

For further compliance support if needed, reach out to us today.

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