SEC Charges Non-Discretionary Adviser with Overstating AUM on ADV
The SEC fined and censured an investment adviser for mis-applying the definition of assets under management and thereby falsely claiming SEC registration eligibility. The SEC alleged that the firmâ€™s recommendations to self-managed 403(b) accounts did not allow the firm to count those assets because the firm did not provide â€œcontinuous and regular supervisory or management servicesâ€ as required by the Form. The clients could accept or not accept the recommendations, and the firm did not effect any purchases or sales. The SEC said that a firm may count non-discretionary assets only if has some sort of ongoing responsibility to make recommendations and effects the securities transactions if the clients accept the recommendations. The SEC also stated that mere rebalancing of portfolios did not constitute â€œcontinuous and regular supervisory or management services.â€ The SEC also rejected the firmâ€™s qualification as an internet adviser because the internet was not the exclusive method for providing advice.
OUR TAKE: This action is helpful guidance about how advisers without investment discretion can determine whether to include such assets for Form ADV purposes.