The SEC has commenced enforcement proceedings against an adviser that it alleges lied to his professional athlete client about management fees. The SEC asserts that the adviser told representatives of the client that the client paid between .15% and .20% of assets in management fees when the client actually paid 1.00%, resulting in significant payments to the adviser who received 60% of the revenue earned by his firm. According to the SEC, the adviser misled the client and his representatives by using false account statements, forged documents, an impostor acting as a Schwab representative, and multiple misrepresentations in emails and meetings. The client’s representatives ultimately contacted Schwab, who then informed his employer. The adviser tried to convince the client to lie on his behalf to protect his job, although the client refused.
OUR TAKE: This type of case shows the problem with assuming that wealthy people are financially sophisticated. Many wealthy people earn their income in fields (e.g. sports, medicine, technology) that would not necessarily make them qualified to make investment decisions. Instead, these successful professionals rely on advisers who are supposed to act as fiduciaries and protect their clients’ interests.