Two RIA Firms Fined/Censured for Failing to Disclose Forgivable Loans from Clearing Brokers
The SEC fined and censured two registered investment advisers for failing to disclose forgivable loans received from clearing broker-dealers intended to encourage the advisers to use the brokers for clearing services. The SEC asserts that the loans should have been characterized as revenue received from the broker-dealers, which should have been disclosed as a conflict of interest in Form ADV. The SEC said that both actions “reflect a continued focus by the SEC’s Office of Compliance Inspections and Examinations (OCIE) and the Enforcement Division’s Asset Management Unit on undisclosed compensation arrangements between investment advisers and brokers-dealers.”
OUR TAKE: Most advisers probably hadn’t considered forgivable loans from the clearing broker as undisclosed revenue giving rise to a conflict of interest similar to revenue sharing. They should now.