Large BD/RIA Sanctioned for Misconduct in Managed Account Program
The SEC censured and fined a large BD/RIA with violations of the Advisers Act’s anti-fraud and supervisory provisions with respect to a financial adviser that recommended unapproved investment managers for its managed account program. The SEC has alleged that various disclosures for the Respondent’s managed account program described the due diligence performed before recommending a money manager. However, a large producer recommended managers that did not go through the due diligence process. The SEC alleges that the firm and the producer had an undisclosed conflict of interest because the recommended investment managers compensated the firm through brokerage commissions and new advisory clients. In addition to violating the anti-fraud provisions of the Advisers Act, the SEC has charged violations of Section 203(e)(6) for failing to properly supervise.
OUR TAKE: In recent years, the SEC has closely scrutinized wrap and managed account programs to ensure that sponsors disclose all conflicts of interest with respect to recommended money managers. The “rogue employee” defense will not likely protect a firm if it benefits from the misconduct.