The Securities and Exchange Commission (SEC) has announced settled charges against a New York-based registered investment adviser for misconduct in advisory services offered to retail clients. The SEC’s findings indicate that, from June 2020 to October 2023, the advisory firm and its representative engaged in practices that were not in the best interest of their clients.
During this period, the investment adviser recommended that clients, particularly those who were elderly and had longstanding relationships with the representative, convert over 180 brokerage accounts into advisory accounts. At the time, these clients were with an unaffiliated broker-dealer that operated on a commission basis.
The SEC order reveals that the adviser failed to uphold its fiduciary duty by not adequately informing clients that this conversion would lead to substantially higher fees and would increase the representative’s compensation without providing clients with additional services or benefits. It was also highlighted that many of these conversions were not suitable for the clients’ needs.
The SEC’s investigation concluded that both the firm and the representative had willfully contravened the antifraud provisions set forth in the Investment Advisers Act. As a consequence, the firm consented to a civil penalty of $150,000 and agreed to engage an independent compliance consultant to review its policies and procedures. Meanwhile, the representative accepted a civil penalty of $75,000 along with a nine-month suspension from the industry.
These actions underscore the significant responsibilities that investment advisers have towards their clients, particularly regarding transparency and the disclosure of potential conflicts of interest.