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Advisory Clients Did Not Receive Promised Fee Breaks


A registered investment adviser agreed to pay $354,000 in client reimbursements and penalties for failing to give clients the benefit of promised fee breakpoints over an 8-year period.  The adviser marketed a fee schedule that offered lower fees as assets increased and offered clients lower fees for aggregated household accounts.  According to the SEC, the respondent failed to apply the lower fees as clients reached the breakpoints or to aggregate household accounts for certain clients.  The SEC maintains that the firm overcharged 293 clients an aggregate of $304,000, which the firm voluntarily refunded following the commencement of the enforcement investigation.  In addition to alleging violations of the Advisers Act’s antifraud provisions, the SEC also faults the firm for failing to implement reasonable compliance policies and procedures.

Some very elementary supervision, operations and compliance infrastructure could have avoided the overcharging and the resulting enforcement action.  Emerging firms looking to squeeze out some profits should not skimp on the basic must-haves of running a proper firm. 

BD Pays $2.3 Million for Sales Charge Violations


A large retail broker-dealer agreed to pay $2.3 Million in restitution because the firm failed to offer load-waived class A shares.  Instead, the eligible customers – retirement plans and charitable organizations – either paid the loads or were directed to higher-expense Class B or C shares.  FINRA faults the firm for over-relying on its financial advisers to determine the applicability of sales charge waivers while failing to properly notify and train them.  Also, the firm failed to adopt adequate controls to detect clients that were entitled to the waivers.  The firm was not fined, presumably because FINRA lauded the respondent for detecting and self-reporting the issues.

OUR TAKE: An adequate compliance program cannot rely on those that need to be monitored to effect proper compliance and surveillance.  An independent function should be tasked with surveillance and implementation.