On March 19, 2025, the SEC obtained a final judgment against a registered investment adviser regarding the adviser’s alleged failure to disclose material conflicts of interest and breach of its duty of care related to its conversion of client accounts to wrap accounts and its selection of mutual funds and money market cash sweep funds for clients.

According to the SEC’s March 1, 2022 complaint, the adviser “regularly and repeatedly put its financial interests ahead of its clients.” According to the complaint, beginning in July 2017 the adviser repeatedly violated its fiduciary duty to clients by converting certain traditional accounts to wrap accounts without disclosing that the adviser had a financial incentive to make the conversions, due to the higher advisory fees on the wrap accounts, and without adequately determining whether the conversion was in each client’s best interest.  The SEC alleged that the adviser instead provided clients with false and misleading information regarding the necessity for the conversions. The SEC also alleged that, although the adviser’s all-in advisory fee on wrap accounts covered both investment advice and transaction fees, the adviser invested wrap account client assets in more expensive no transaction fee (NTF) mutual funds, for which the adviser avoided paying millions of dollars in transaction fees out of its wrap fee revenue, when lower-cost fund options were available for the client accounts.  According to the SEC’s complaint, from at least January 2014 the adviser violated its fiduciary duty to clients by failing to disclose its conflicts of interest associated with recommending NTF mutual funds to its wrap account clients, investing wrap account clients in NTF funds that were not in the clients’ best interest, failing to seek best execution, and failing to evaluate whether clients should be moved to a lower-cost mutual fund option.

The SEC also alleged that, from at least January 2014, the adviser failed to act consistent with its duty of care obligations and failed to disclose its conflicts of interest to its clients when the adviser invested client assets in certain mutual funds and money market cash sweep funds that generated millions of dollars in revenue sharing payments to the adviser’s affiliated broker-dealer while other less expensive options (that did not provide additional compensation to the affiliated broker-dealer) were available.

Without admitting or denying the allegations, the adviser consented to the entry of the final judgment, permanently enjoining it from violating Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7 thereunder. The adviser has been ordered to pay $15 million in disgorgement, prejudgment interest, and a civil penalty.

The final judgment is available here, and a related press release is available here. The SEC’s complaint is available here.