Broker-dealers and investment advisers are subject to a number of restrictions regarding marketing and advertising their services. In contrast, those who are not registered but acting as, for example, an unregistered investment adviser, are not subject to the same restrictions. This does not mean, however, that an unregistered adviser has no constraints on advertising. A recent case filed by the Commission, illustrates the point. In the Matter of Collaborative Financial Consulting LLC, Adm. Proc. File No. 3-21782 (October 11, 2023).

Collaborative Financial is a limited liability company based in Beverly Hills, California. The firm is not registered with the Commission or any other agency. Jason Reynolds has been the sole member of Collaborative from January 7, 2016, to the present. Previously, he was a registered representative and investment adviser associated with a registered representative and investment advisers.

In June 2019 Respondent Reynolds resigned his positions as a registered representative and investment adviser. His registration was terminated. The next month Mr. Reynolds began using Collaborative to conduct business as an unregistered investment adviser and financial planner. He also provided other services such as tax preparation and health insurance.

For a fee, Mr. Reynolds and his firm met personally with clients. During the meetings advise was furnished on stocks traded on national exchanges. Typically, after the meeting the clients placed securities purchase or sell orders through a broker. In some instances, Mr. Reynolds used the clients’ information to place and execute the transactions. Over a two-year period, beginning in 2019, Respondents received fees of at least $150,000 from eleven clients in several states for providing investment advice.

During the period Mr. Reynolds provided clients a document titled Client Agreement. It described the services being rendered. It also stated that Mr. Reynolds holds Series 7, 66, and 65 licenses in several states. He knew at the time the agreements were provided to the clients that those licenses had been terminated. The Order alleges violations of Advisers Act Section 206(2).

To resolve the proceedings Respondents consented to the entry of cease-and-desist orders based on the Section cited in the Order. In addition, Mr. Reynolds is barred essentially from the securities business but may apply for reentry after three years. The firm is censured. Mr. Reynolds will also pay a penalty of $20,000. That penalty is deemed satisfied by the amount paid in a parallel California state proceeding brought against each Respondent.

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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.

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