Adviser Settles Conflicts Case
Brokers and other professionals are frequently involved in situations where they have the authority to make choices on behalf of clients. In making those choices there is frequently a conflict between the best interest of the client and the self-interest of the person making the choice. The professional obligation of a person such as an investment adviser is governed by their fiduciary duty to act in the best interest of the client. Unfortunately, some professionals continue to make the wrong choice despite the fact that the Commission has brought numerous cases to reinforce the point. The most recent case of the agency on this point is In the Matter of Wilmington Investment Management, LLC, Adm. Proc. File No. 3-21780 (October 10, 2023).
Respondent Wilmington has been a registered investment adviser since 1992. The firm has about $599 million in regulatory assets under management. As of June 2021, the firm no longer served as the manager and investment adviser to the Wrap Program which is at the center of this case.
Beginning in February 2020, and continuing until August of that year, the firm offered a wrap program option for advisory clients. In conjunction with the program Respondent was responsible for paying client trading costs. The firm avoided incurring transaction fees for wrap program clients by investing client funds in higher cost mutual fund shares from no-cost share classes of the same funds that were available at a higher cost but which did not charge a fee. Clients thus incurred a higher cost for the same shares.
The adviser failed to fully disclose to clients the manner in which shares were selected for investment with their funds. The firm also breached its duty of care and to seek best execution as a result of the manner in which shares were selected for investment by clients in the wrap fund program. In addition, the advisor failed to implement written compliance policies and procedures to prevent the violations of the Advisors Act incurred here.
The Order alleges violations of Advisers Act Sections 206(2) and 206(4). Here the adviser reimbursed the clients involved. The firm also agreed to implement certain undertakings. To resolve the proceedings Respondent consented to the entry of a cease-and-desist order based on the Sections cited in the Order. The firm also agreed to pay disgorgement in the amount of $999,559, prejudgment interest of $77,588 and a penalty of $250,000.
Adviser Settles Conflicts Case
Brokers and other professionals are frequently involved in situations where they have the authority to make choices on behalf of clients. In making those choices there is frequently a conflict between the best interest of the client and the self-interest of the person making the choice. The professional obligation of a person such as an investment adviser is governed by their fiduciary duty to act in the best interest of the client. Unfortunately, some professionals continue to make the wrong choice despite the fact that the Commission has brought numerous cases to reinforce the point. The most recent case of the agency on this point is In the Matter of Wilmington Investment Management, LLC, Adm. Proc. File No. 3-21780 (October 10, 2023).
Respondent Wilmington has been a registered investment adviser since 1992. The firm has about $599 million in regulatory assets under management. As of June 2021, the firm no longer served as the manager and investment adviser to the Wrap Program which is at the center of this case.
Beginning in February 2020, and continuing until August of that year, the firm offered a wrap program option for advisory clients. In conjunction with the program Respondent was responsible for paying client trading costs. The firm avoided incurring transaction fees for wrap program clients by investing client funds in higher cost mutual fund shares from no-cost share classes of the same funds that were available at a higher cost but which did not charge a fee. Clients thus incurred a higher cost for the same shares.
The adviser failed to fully disclose to clients the manner in which shares were selected for investment with their funds. The firm also breached its duty of care and to seek best execution as a result of the manner in which shares were selected for investment by clients in the wrap fund program. In addition, the advisor failed to implement written compliance policies and procedures to prevent the violations of the Advisors Act incurred here.
The Order alleges violations of Advisers Act Sections 206(2) and 206(4). Here the adviser reimbursed the clients involved. The firm also agreed to implement certain undertakings. To resolve the proceedings Respondent consented to the entry of a cease-and-desist order based on the Sections cited in the Order. The firm also agreed to pay disgorgement in the amount of $999,559, prejudgment interest of $77,588 and a penalty of $250,000.