Large BD/IA Fined $1 Million for Pension Consulting Affiliate’s Disclosure Failures and Conflicts
A large broker-dealer/investment adviser agreed to pay a $1 Million fine and accepted a cease and desist order as a result of SEC allegations that its pension fund consulting affiliate failed to disclose compensation arrangements that benefited affiliates. The pension consulting affiliate, according to the SEC, did not disclose that its recommended directed brokerage program and transition management services benefited affiliates and their investment adviser representatives. The SEC also alleged that (i) the Respondent’s method for recommending managers did not comport with the Brochure delivered to clients, (ii) the Respondent failed to keep adequate records concerning ADV Part II delivery and (iii) the Respondent failed to adequately supervise the offending office and its personnel. The SEC alleged violations of the Advisers Act’s anti-fraud and recordkeeping rules.
OUR TAKE: This is a conflict of interest case. The SEC has consistently pursued investment advisers, who are fiduciaries, for conflicts of interest that result in financial benefits to the adviser or an affiliate to the detriment of their clients. Although the SEC frames these cases as a failure to adequately disclose the conflict of interest, we wonder whether any amount of disclosure can protect a fiduciary that lines its own pockets at the expense of its clients.