On April 3, 2014, the SEC announced that it had entered into a settlement with a registered investment adviser and broker-dealer based on allegations that the defendant failed to give certain of its clients the benefit of applicable breakpoint discounts. Specifically, the SEC’s order states that the defendant, through its investment adviser representatives (“IARs”), offered retail clients several investment programs which provided assistance with respect to allocation of their assets among various investment products and that each such program involved different management tools, research, and fees. According to the SEC, the defendant failed, despite client requests, to aggregate values of related accounts in several of its retail advisory fee programs as provided in the defendant’s disclosures in its Form ADV Part 2 filings, account opening documents, and policies and procedures. The order alleges that SEC examiners first alerted the defendant about these breakpoint aggregation problems in 2010 after an examination of a branch office. Although the firm provided client refunds to customers of that branch office, in a 2012 follow-up exam the SEC found that the aggregation issues identified in the previous branch office examination existed in the defendant’s nationwide operations and were ongoing.
The SEC’s order states that the failures occurred because the defendant failed to adopt and implement policies and procedures reasonably designed to ensure that its IARs reduced advisory fees when clients opted to aggregate accounts in the applicable retail investment programs. Without admitting or denying the SEC’s finding, the defendant, which had already reimbursed its clients for the fee overcharges, agreed to a pay a civil money penalty in the amount of $553,624 and also undertook to, among other things, retain an independent consultant to conduct a review of its policies and procedures and certain other disclosure documents.