On May 21, 2024, the SEC announced the settlement of administrative proceedings brought against a dually-registered broker-dealer and investment adviser for its alleged failure to address conflicts of interest in compliance with Rule 15l-1(a) of the Securities Exchange Act of 1934 (Regulation Best Interest) and the Investment Advisers Act of 1940.
According to the order, between June 2020 and February 2022, the broker/adviser’s representatives recommended that its clients with $1 million or more in investments consider transferring securities from their brokerage and investment advisory accounts to new accounts with an affiliated wealth management firm. The SEC alleged that the broker/adviser paid its representatives a finders’ fee for referring these clients to the affiliated firm and also paid them an annual fee based on the value of the assets that were transferred to or otherwise placed in new accounts at the affiliated firm. The SEC alleged that the broker/adviser and its representatives failed to disclose these fee arrangements and the conflicts of interest associated with the transfer recommendations in writing to their clients. The SEC further alleged that the broker/adviser’s written policies and procedures were not reasonably designed to identify these conflicts of interest and address them through disclosure, mitigation or elimination. As a result, the SEC also alleged that the broker/adviser’s policies and procedures were not reasonably designed to achieve compliance with Regulation Best Interest.
According to the order, the broker/adviser willfully violated Regulation Best Interest, Section 206(2) of the Advisers Act, which makes it unlawful for an adviser to engage in fraud or deceit upon any client or prospective client, and Section 206(4) of the Advisers Act and Rule 206(4)-7 thereunder, which require advisers to adopt and implement written policies and procedures reasonably designed to prevent violations of the Advisers Act and the rules thereunder. Without admitting or denying the allegations, the broker/adviser agreed to cease and desist from future violations, to be censured, and to pay a civil monetary penalty of $223,228.
The SEC’s order is available here, and a related press release is available here.