More On Legal & Compliancefrom The Advisor's Professional Library
- Do’s and Don’ts of Advisory Contracts In preparation for a compliance exam, securities regulators typically will ask to see copies of an RIAs advisory agreements. An RIA must be able to produce requested contracts and the contracts must comply with applicable SEC or state rules.
- Client Commission Practices and Soft Dollars RIAs should always evaluate whether the products and services they receive from broker-dealers are appropriate. The SEC suggested that an RIAs failure to stay within the scope of the Section 28(e) safe harbor may violate the advisors fiduciary duty to clients, so RIAs must evaluate their soft dollar relationships on a regular basis to ensure they are disclosed properly and that they do not negatively impact the best execution of clients transactions.
On Thursday, Massachusetts securities regulators fined and censured Conquest Capital Partners, Conquest Phoenix Fund and Conquest Capital co-founder Ryan Gadles for selling privately placed securities to investors, who were urged to roll their 401(k) investments into a self-directed IRA.
According to regulators, the parties offered investors the chance to buy a home in the Phoenix area, renovate it and sell it for a profit via funds placed into self-directed IRAs. The state has ordered them to give investors a refund for the private placement.
“Investors should be on guard against efforts to steer them towards self-directed IRAs,” said William Galvin, secretary of the Commonwealth of Massachusetts' securities division, in a press release. “While they are legitimate, they can be used by unprincipled promoters to deceive investors as to the safety of the investment."
In September 2012, Gadles told the investors that he hadn’t raised the minimum amount of funds needed to buy and flip a home, $110,000. Earlier, he’d told them that they would earn 8% annually and could expect a projected three-year return of 13% to 17%.
However, they were told “the sooner we can get your money out of your IRA and 401(k), the sooner you can stop losing money.”
“Investors are often told that there is a custodian holding the investments, but they are not told of the limited role that such IRA custodians have in evaluating an investment, nor are they told of the often high fees associated with these accounts,” the secretary added.
“With the oncoming of the ‘Crowdfunding Era,’" he warned, "investors must be on guard against offerings which are unbalanced, one-sided, and replete with unbridled puffery.”
Check out Massachusetts Fines Citigroup Global $30M Over Leaked Research on ThinkAdvisor.