Adviser Did Not Fully Disclose Revenue Sharing from Broker
The SEC has commenced enforcement proceedings against an adviser and its principals for failing to disclose revenue sharing payments received from the broker it used for execution, clearing and custody. According to the SEC, the adviser received up to 12 basis points on client assets invested in NTF funds purchased through the broker’s platform. The SEC asserts that the adviser’s Form ADV failed to disclose (i) the revenue sharing agreement, (ii) that the adviser had an incentive to prefer certain NTF funds, or (iii) that the arrangement created conflicts of interest.
OUR TAKE: The SEC closely scrutinizes any revenue sharing payments received by an investment adviser. It is unclear whether any amount of disclosure will be sufficient. Regardless, if an advisor does participate in revenue sharing, it must disclose the arrangement with specificity including describing the agreement, the incentives the agreement creates, and that the firm has conflicts of interest.