Firm Pays $1.1 Million for Failing to Implement Advertised Breakpoints
A registered investment adviser agreed to pay over $1.1 Million in reimbursements and penalties for failing to give clients aggregated account breakpoint discounts. The firm had advertised that clients could aggregate accounts to consolidate balances in order to benefit for fee breakpoints. However, the firm failed to offer effect these breakpoints, which the SEC noted following a 2009 exam. Despite remedial efforts, the SEC found, during a 2012 exam, that the firm continued to fail to offer the breakpoints. The interim period remedial efforts included an internal firm-wide compliance alert, changes in account-opening documentation, modified policies and procedures, and mailing inserts to clients. However, the firm’s headquarters failed to implement breakpoint discounts because two separate new account teams failed to specifically delineate responsibility. Also, many of the new client forms were not completed or the IARs set fees so as to negate the breakpoints. The SEC charges violations of the anti-fraud, disclosure and compliance rules.
OUR TAKE: We see three lessons from this case: (i) connect your marketing statements to your actual practices, (ii) implement your policies and procedures, not just state them in manuals and client communications; and (iii) take the remedial actions that you promised the SEC during your last exam because the staff has little patience for recidivists.