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SEC Charges Adviser for Failures to Disclose Conflicts of Interest

SEC Charges Adviser for Failures to Disclose Conflicts of Interest


On September 13th, 2018, the Securities and Exchange Commission (SEC) released its charges against a Registered Investment Advisor (RIA) for allegedly failing to disclose the compensation it received under an agreement with a third-party broker-dealer (“Custodian”). The undisclosed arrangement between the RIA and third-party broker dealer allegedly lasted from 2012-2016 and created an incentive for the firm to favor this specific broker-dealer when giving investment advice over others.

In addition, in its capacity as a broker-dealer, the RIA allegedly invested its clients in mutual fund share classes when lower cost share classes were available for the same fund, so it could reap the benefits of higher fees, thus creating another conflict of interest that the RIA allegedly failed to disclose to clients.  Failure to invest in the less expensive share class and disclose the conflict of interest violated the advisers’ best execution duty.

Lastly, the RIA was allegedly found to have insufficient policies and procedures in place to manage the conflicts mentioned above.

Without admitting or denying the charges, the adviser agreed to pay $241,479 for its violations.


Although repeatedly prompted by Form ADV, the adviser failed to fully and fairly disclose the compensation it received from third-parties, both from the Custodian and in its capacity as a broker-dealer.  The compensation should have also been disclosed in client agreements.  Failure to disclose such conflicts of interest is a breach in fiduciary duty to clients.

For more information on this case and how it may relate to you, please reach out to Fairview directly.