RIA Charged for Breaching Fiduciary Duty
SEC RELEASES
Introduction
The SEC charged a New York RIA, and one of its former Investment Advisors, for misconduct involving their retail clients.
Fiduciary Duty requires Investment Advisers to consider the best interest of their clients, especially when there are significant conflicts of interest involved.
The firm was charged $150,000 and the former representative was charged $75,000.
What Happened?
According to the SEC:
- From June 2020 to October 2023, the RIA and one of its Investment Adviser Representatives (IARs) converted over 180 brokerage accounts from a different Firm to advisory accounts at the RIA.
- The IAR also worked at the Firm where the brokerage accounts were converted from.
- The majority of the accounts were owned by elderly, long-time customers of the IAR that were operating under a commission fee structure.
- The RIA and the IAR were required to disclose the significant conflict of interest to the clients and consider the best interest of the clients when making these recommendations.
- Some clients were provided Investment Management Agreements (IMAs) missing the fee schedule, others were not provided any IMA before Advisory Services began, and in some instances an assistant filled in the advisory fees after the client signed the IMA.
- Some accounts suffered a seven-fold increase in fees, while others paid more than ten times their previous fees.
- The RIA voluntarily refunded many of the fees upon recognizing they did not have signed IMAs.
- Trading activity on the accounts before and after the transfers was similar, and in some cases decreased, despite the higher fees.
Vigilant’s Conclusion
Fiduciary Duty includes a duty of care. An Adviser is expected to provide investment advice in the best interests of its client based on the client’s objectives.
Advice and monitoring should occur over the entire course of the relationship. This includes account type and especially includes the fee structure associated with the account.
It is essential that Firms have documented evidence that they conduct on-going reviews of their client accounts.
Please reach out to Vigilant today to discuss how your Firm assesses and documents the suitability of client accounts, and to identify any potential weaknesses in your policies and procedures that could lead to unnecessary regulatory headaches.