A dual-registered broker-dealer and investment adviser reached parallel settlements with the SEC and New York Attorney General ("NYAG") (collectively, the "Agencies") to resolve charges for inaccurate and misleading statements and failing to sufficiently disclose conflicts of interest to participants in employer-sponsored retirement plans.
In their Orders (here and here), the Agencies alleged that the firm and its Wealth Management Advisers ("WMAs") did not adequately disclose the full nature and extent of conflicts of interest in recommending to clients that they roll over retirement assets into a specific managed account program. The Agencies alleged, among other things, that the company incentivized and pressured its WMAs to prioritize the managed account program over lower-cost alternatives while holding themselves out as fiduciaries. The Agencies alleged that the company (i) paid WMAs more in variable compensation for signing clients up for the managed account program than for other alternatives and (ii) reprimanded WMAs for failing to meet enrollment targets, including placing WMAs on performance improvement plans and threatening to terminate their employment.
Additionally, the Agencies alleged that the company did not take adequate steps to ensure that its WMAs discussed with clients the fees arising from the rollover recommendations. Rather, the SEC found that training materials directed WMAs not to discuss such fees with clients.
As a result of its findings, the SEC determined that the company violated Sections 206(2) and 206(4) of the Advisers Act and IAA Rule 206(4)-7 ("Compliance Procedures and Practices"). The NYAG determined that the company violated Section 63(12) of the Martin Act.
To settle the charges, the company agreed to (i) cease and desist from any future violations, (ii) be censured, and (iii) pay disgorgement, prejudgment interest and a civil penalty totaling $97 million that will be distributed to investors through a "Fair Fund."
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