A Washington-based RIA with $3.7 billion in managed assets will pay $430,000 to settle SEC charges it violated the regulator's marketing rule with its use of hypothetical performance in ads.
The Pacific Financial Group is based in Bellevue, Wash. and has been registered since 1983, according to the settlement order filed Friday. It markets itself as the “only multi-manager, multi-strategy Turnkey Asset Management Platform (TAMP) designed specifically for self-directed brokerage accounts and the retirement plan market,” according to its website.
The SEC’s updated ad rule was passed in late 2020, with an effective date the following May and a compliance deadline of late 2022. The rule delineated how firms could use testimonials and endorsements in advertising and the performance metrics registrants could use in marketing materials, particularly curtailing how they can use hypothetical performance.
According to the commission, the Pacific Financial Group published ads on its website that included hypothetical performance consisting of performance “derived from model portfolios.” These ads were “disseminated to the general public rather than to a particular intended audience,” according to the order.
According to the SEC, the firm failed to implement procedures “reasonably designed” to ensure the ads’ hypothetical performance was relevant to the “likely financial situation and investment objectives” of the intended audience.
However, the commission noted the firm appointed new executives in March, with Chris Mills replacing Megan Meade as CEO and a new chief compliance officer and chief legal officer. The commission said the new leadership team looked at the alleged lapses “and cooperated fully with the staff,” according to the order.
Pacific Financial Group did not return a request for comment prior to publication.
In addition to the $430,000 penalty, Pacific Financial Group agreed to a censure. The firm also agreed to update its policies and procedures to catch ad rule lapses and provide evidence to the SEC that it had done so (although it didn’t admit or deny the SEC’s allegations).
The commission settled its first ad rule-related charges against a firm in August 2023, alleging Titan Global Capital Management made misleading statements about its hypothetical performance metrics for its crypto strategy. Since then, the commission has settled with numerous other firms in September and April.
