August 7, 2026
What happened?
On July 31, 2026, the SEC settled charges against a New York-based registered investment adviser for calculating and charging advisory fees inconsistently with its advisory agreements and Form ADV Part 2A disclosures and for failing to implement written policies and procedures designed to ensure advisory fees were calculated correctly. According to the SEC, the firm’s practices resulted in clients paying advisory fees that exceeded what the firm’s representations stated they would pay.
According to the SEC’s order, the firm’s advisory agreements and Form ADV Part 2A represented that clients would receive advisory fee offsets when the firm or its affiliated broker-dealer received referral, solicitation, or placement fees from third-party investment advisers, fund managers, or issuers in connection with a client’s investment. While the firm generally applied the offsets, the SEC found that it did not credit clients for certain performance fee compensation received from six private fund managers, despite representing that such compensation would offset advisory fees. The SEC claims this practice resulted in clients paying higher advisory fees than contemplated by the firm’s agreements, with the firm failing to credit clients with at least $282,921.82 of such fees. The performance fee compensation that was not being offset also created an undisclosed conflict of interest for the firm to recommend the private fund managers that paid such compensation to the firm. Additionally, the SEC found that the firm failed to implement written policies and procedures requiring advisory fees to be calculated in accordance with client agreements and disclosures and failed to update or amend those disclosures to accurately reflect current practices.
Without admitting the findings, the firm agreed to a cease-and-desist order, a censure, and to pay disgorgement of $282,921.82, prejudgment interest of $81,037.23, and a civil penalty of $125,000.00.
What does this mean for me?
Chairman Atkins said he wanted the Division of Enforcement to focus on cases with quantifiable harm or clear fraud and move away from technical violations with no direct harm to clients or investors. This enforcement action has quantifiable harm – fee offsets that were not applied (totaling at least $282,921.82) and an incentive for the investment adviser to seek more of those fees to the detriment of clients. Investment advisers should regularly evaluate both the existence of conflicts of interest and the effectiveness of current disclosures and compliance controls designed to keep this kind of client harm from happening.
Where advisers receive compensation from affiliated entities or third-party managers, firms should confirm that the fee practices are consistent with contractual agreements and regulatory disclosures. As the SEC continues to emphasize conflicts of interest, firms should expect continued scrutiny of undisclosed incentives, inaccurate disclosures, and failures to implement written policies and procedures.
If you have questions about testing fee calculation, disclosing conflicts of interest, reviewing advisory agreement language, or strengthening your compliance program, contact us. Fairview is here to help.
