SEC Fines Investment Adviser for Failing to Refund Unearned Fees When Client Terminates Advisory Services

July 26, 2018

The U.S. Securities and Exchange Commission (“SEC”) recently settled with an investment adviser firm which allegedly had improperly refused to refund $131,000 in unearned advisory fees to 63 departing investment advisory clients. The SEC censured the investment adviser firm and imposed a $100,000 civil penalty on it. The SEC also imposed a $50,000 penalty on the investment adviser firm’s majority owner.

The SEC alleged that the investment advisory clients had requested the investment adviser firm terminate their relationships over emails. The investment adviser firm and its majority owner initially refused to recognize the requests as valid, demanding hard copies of client signatures even though their investment advisory client agreements and disclosure documents didn’t require it for termination of services. In addition, the SEC found the investment adviser firm to have made misleading statements to clients by not disclosing that the firm was insolvent at the time. For additional details, the SEC settlement of this administrative proceeding can be found here.

RIA Compliance Consultants, Inc. recently held a webinar which covered the SEC’s new examination focus on the investment advisory fees and expenses charged by investment advisers to their clients. That webinar can be purchased here, or is available to all of our annual compliance package clients through the client’s online subscription account. Additionally, RIA Compliance Consultants also has developed several sample forms to assist an investment adviser firm in auditing and reviewing the investment advisory fees charged to its clients. These sample forms are available to most package clients or can be purchased a la carte here, here, and here. Finally, RIA Compliance Consultants has updated its online self-assessment tool, RIA Express – Compliance Review, with new questions/findings designed to help an investment adviser avoid some of the common investment advisory fee/expense problems recently found by the SEC during its examinations of investment adviser firms. To set up an introductory call, please click here.

Posted by Grant Parr
Labels: Enforcement, Fee Audit, SEC