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SEC Imposes $300,000 Fine for Wrap Program ADV Missteps


The SEC fined a wrap program sub-adviser $300,000 because of Form ADV disclosure deficiencies.  According to the SEC, the respondent’s Form ADV disclosed that the firm would generally trade through wrap programs’ broker-dealers but actually made most trades through other brokers.  This trading away resulted in higher costs to investors because the trading away commissions were not included in the wrap fees.  The SEC did note that the respondent used third party brokers to obtain better execution and that the respondent did not profit in any way.  The SEC indicated that this action results from its sweep of wrap fee programs to assess “whether advisers are fulfilling fiduciary and contractual obligations to clients and properly managing such aspects as disclosures, conflicts of interest, best execution, and trading away from the sponsor.”

OUR TAKE: Take a very hard look at your Form ADV disclosures to make sure they properly represents how you truly run your business.  During exams, the SEC will spend significant time looking for disclosure inconsistencies and then impose fines for deemed insufficient or misleading disclosures.