On April 18th, an Investment Advisory Firm was charged by the SEC for misstatements and omissions relating to its automated tax loss harvesting service and failures of proper bookkeeping and client notification.
Due to the charges, the Firm was forced to pay a $9 million civil penalty that will be distributed to affected clients.
- From 2016 to 2019, the Firm misstated or omitted information from clients related to their automated tax reduction service.
- The software had coding errors that caused the program to miss multiple opportunities to harvest tax losses from clients.
- The Firm failed to disclose to clients that changes were made to the program that affected the scanning frequency.
- 25,000 client accounts were affected resulting in $4 million dollars of potential tax savings.
- The Firm also made changes to its advisory contracts without providing advanced notice to clients and failed to maintain accurate records of written agreements with their clients.
SEC charges can cause costly regulatory burdens for Investment Advisory Firms.
Most compliance failures start with a lack of a strong compliance culture based on effective, enforceable, and relevant written policies and procedures.
Additionally, it is vital that Advisory Firms understand their fiduciary duty when handling disclosures and material statements.
Considering the amount of time, resources, and industry knowledge required to craft effective compliance programs, many Firms rely on specialized compliance professionals for support.
Reach out to Vigilant today to discuss how we could reduce your regulatory burden.