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Day: June 5, 2018

Adviser Failed to Disclose Kickbacks from Vendors

The SEC fined an investment adviser $8 Million for failing to disclose compensation received from vendors it recommended to clients.  The respondent and its investment adviser representatives routinely counselled clients with UK pension benefits to transfer those assets to offshore vehicles operated by third party custodians and trustees.  The SEC alleges that the adviser did not disclose that the third parties paid a portion of their fees back to the adviser and its IARs based on the business recommended.  The SEC faults the firm for inadequate disclosure and a compliance program that failed to address this inherent conflict of interest.

OUR TAKE: The best solution for avoiding compensation conflicts is to include all compensation in the disclosed management fee and avoid any payola from third parties.  Receiving payments from third parties raises such a significant conflict of interest that the SEC may not be satisfied with mere disclosure, no matter how fulsome.