The SEC settled charges against two investment advisory firms in conjunction with compliance failures within their wrap fee programs.
The SEC investigations found that the firms:
- failed to establish policies and procedures necessary to determine the amount of commissions their clients were being charged when sub-advisers "traded away" with a broker-dealer outside the wrap fee programs; and
- failed to provide their respective financial advisors with critical information regarding the magnitude of the costs to clients. The advisers, in turn, failed to consider these commissions when determining whether sub-advisers or wrap fee programs were suitable for their clients. These failures left certain clients unaware they were paying additional costs beyond the single wrap fee they were paying for bundled investment services.
The SEC noted that its National Exam Program includes wrap fee programs among its annual examination priorities, particularly focusing on whether advisers are fulfilling their fiduciary and contractual obligations to clients and properly managing account aspects such as: disclosures, conflicts of interest, best execution and trading away from the sponsor broker-dealer.
The two firms agreed to pay fines of $600,000 and $250,000, respectively.
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