Nine RIAs will pay more than $1.2 million to settle charges they violated the SEC’s marketing rule, according to the commission. It’s the latest in several enforcement actions this year related to the rule that took effect in 2021.
The fined firms include Integrated Advisors Network, Richard Bernstein Advisors and Abacus Planning Group, paying $325,000, $295,000 and $150,000, respectively (the other six firms are paying five-digit penalties). According to Corey Schuster, co-chief of the SEC Enforcement Division’s Asset Management Unit, the ads at the heart of the allegations posed “a serious risk” of misleading clients.
“Investment advisors must comply with all aspects of the marketing rule, and we will continue to hold them accountable when they fail to do so,” he said.
According to the Integrated Advisors settlement, the firm disseminated an ad claiming it could “provide investment advice that put the client first by ‘aligning incentives and eliminating conflicts of interest,’ without providing any context for this claim.” Integrated is a Dallas-based firm with about $4.2 billion in regulatory assets under management.
The SEC also alleged that the firms AZ Apice, Callahan Financial and Droms Strauss similarly claimed to be able to provide conflict-free advice without being able to back up their claims. The commission alleged that Callahan Financial posted ads claiming it was a member of an organization that didn’t exist, while Callahan and Abacus Planning Group published ads with false statements.
According to the commission, the firm Howard Bailey disseminated ads with two testimonials that didn’t come from current clients and didn’t disclose that endorsements came from a paid non-client.
The commission also alleged that Abacus, Beta Wealth, Professional Financial and Richard Bernstein Advisors included third-party ratings in their ads, some more than five years old, without disclosing the dates when the ratings were given. All firms agreed to the settlements without admitting or denying the commission’s findings.
The SEC’s updated ad rule was passed in late 2020, with a compliance deadline of late 2022. The rule clarified how firms could use testimonials and endorsements in advertising and the kind of performance metrics firms could use in marketing materials; it particularly curtailed how registrants could use hypothetical performance in ads.
The commission settled its first ad-rule-related charges in August 2023, accusing Titan Global Capital Management of making misleading statements about hypothetical performance metrics related to its crypto strategy.
The commission has continued to settle with firms in fits and starts, including five firms (GeaSphere, Bradesco Global Advisors, Credicorp Capital Advisors, InSight Securities and Monex Asset Management) in April. The firms collectively paid $200,000 to settle SEC charges. The Pacific Financial Group, a $3.7 billion Washington-based RIA, also agreed to pay $430,000 last month to settle SEC charges the firm violated the ad rule.
To date, the SEC has unveiled three risk alerts related to the marketing rule; the most recent release in April indicated SEC examiners continued to find violations, including advisors who falsely claimed they were “free of all conflicts." Wealthtender CEO Brian Thorp told WealthManagement.com that in this "early stage" of the commission's ongoing ad-rule related sweep, the commission is reiterating that RIAs telling clients they provide conflict-free advice "goes a step too far."
"For example, most advisory firms earn additional revenue as the assets they manage increase, so a conversation about rolling a 401(k) over to the firm to manage in an IRA represents an example of conflicted advice," Thorp said. "Of course, most RIAs may still be acting thoughtfully when making a recommendation of this nature, among many others, depending upon the circumstances at the time, but you can imagine a firm trying to produce documentation substantiating they somehow alleviate all of these type of conflicts will be hard-pressed to do so, so an advertisement suggesting a firm offers conflict-free advice should probably likely never see the light of day."
