RIAs can get into a lot of trouble now with the SEC if they don't disclose their revenue-share agreements to investors.
The regulator hammered down on the $150 million Houston-based RIA Robare Group
for allegedly failing to disclose on its ADV documents "servicing fee" and "custodial support services" agreements that gave the RIA a share of the assets allocated to funds custodied on a particular platform.
The charges, outlined in an SEC press release
, as well as a court order
, include fraud.
In the press release, Marshall Sprung
, co-chief of the SEC Enforcement Division’s Asset Management Unit, declared that “payments to investment advisers for recommending certain types of investments may taint their ability to provide impartial advice to their clients,…By failing to fully disclose its agreements with the brokerage firm, Robare Group deprived its clients of important information they were entitled to receive.”
The Asset Management Unit, which leveled the charges against Robare, has "undertaken an enforcement initiative to shed more light on undisclosed compensation arrangements between investment advisers and brokers," according to the press release.
The SEC would not comment on the charges.
The attorney representing Robare in the charges, Alan Wolper
at the Chicago-based law firm Ulmer & Berne
, told MFWire
that his clients "clients deny the allegations," and they "intend to defend these allegations vigorously."
"We look forward to hearing whatever evidence the SEC may put before the ALJ in its effort to meet its burden of proof, and we also look forward, ultimately, to prevailing," he said.
According to the SEC documents, the Robare Group, from September 2005 to September 30, 2013, received roughly $441,000 in fees from its broker pursuant to these revenue-share agreements. One arrangement that was in effect from 2004 to late 2012 gave Robare between two and 12 basis points of the assets allocated to funds custodied on one particular NTF platform. A second arrangement, which came into effect in late 2012, gives Robare 10 basis points, according to the documents.
According to the SEC’s court order, Robare revised its Form ADV in December 2011 to disclose the compensation agreement, "but this and later disclosures falsely stated that the firm did not receive any economic benefit from a non-client for providing investment advice. The disclosures also were inadequate because they stated that Robare Group may receive compensation from the broker when in fact the firm was definitively receiving payments."
It wasn't until June 2013, the SEC Enforcement Division alleges, "that the firm disclosed the conflict of interest associated with its arrangement with the broker, and even then it failed to disclose the incentive to recommend buying and holding certain mutual funds through the broker’s platform or the magnitude of the conflict."
In both the press release and the court order, as well as via email, the SEC declined to name the broker with which Robare had the revenue-sharing agreements. Nor did the agency name the fund platform that provided the incentives. Neither of these companies have been accused of any wrong-doing.
According to Robare's latest ADV filed in April 2014
, the RIA does business with the brokerage firm Triad Advisors
, and custodies its assets with Fidelity's National Financial Services
Moreover, according to the ADV
, Robare declares that " Fidelity has agreed to pay us a fee on specified assets, namely No Transaction Fee (“NTF”) mutual fund assets in custody
doesn't know whether the agreements related to the non-disclosure case involve either Triad or Fidelity. Again, the SEC didn't accuse any brokers or mutual fund firms with any wrong-doing in the case. Requests for comment from both companies were not answered as of press-time.
This is not the first time that the SEC has taken action against an RIA for failing to disclose revenue-sharing agreements. In September 2012, the regulator settled similar charges against two Portland, Oregon firms
for $1.1 million.
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