RIA Fails to Disclose Forgivable Loans to IARs
A registered advisor was censured, find and agreed to hire an independent compliance consultant for not disclosing forgivable loans to its investment advisor representatives.
The IARs received loans from a third-party that were forgiven over time so long as the IARs met revenue or tenure targets. The SEC asserts that the IARs had significant conflicts of interest because they had an incentive to sell the third party’s products or retain their licenses with the firm. Although the respondent did reference the relationship in the form ADV, it did not disclose the forgivable loans or the conflicts of interest.
Don’t engage in half-disclosure. If you recognize a conflict of interest, disclose it fully and completely. Otherwise, you’re just planting a red flag for the regulator to dig deeper and ask more questions.
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