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SEC Fines Advisory Firm for Failing to Give Promised Fee Discounts

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The Securities and Exchange Commission has fined a California-based investment advisor $340,000 for failing to give advisory clients fee-breakpoint discounts that they were owed, resulting in clients being overcharged.

The securities regulator said in its Nov. 19 order that Retirement Capital Strategies Inc., headquartered in San Jose, failed to apply advisory fee discounts to certain client accounts contrary to its disclosures, representations to clients and the firm’s advisory agreements over an eight-year period.

From January 2010 through February 2018, RCS offered clients an advisory fee between 0.4% and 1.5% of clients’ assets under management based on fee breakpoints described in a fee schedule that reduced the advisory fee as client AUM increased, the order states.

RCS’ fee schedule was incorporated by reference in client advisory agreements, distributed to clients upon request, and, starting in 2011, disclosed in RCS’ Form ADV Part 2A filed with the commission.

RCS offered clients discretionary investment advisory services for a fee on its Strategic Wealth Management platform, the order states.

“RCS’ written policies and procedures manual stated that RCS was to conform its client fees and fee billing practices to those described in the Form ADV and in the advisory agreements provided to clients,” the order states.

In certain instances, however, “RCS failed to apply the breakpoint discounts,” the SEC said. “As a result, RCS improperly calculated advisory fees and thereby overcharged certain clients.”

The SEC maintains that the firm overcharged 293 clients an aggregate of $304,000, which the firm voluntarily refunded following the commencement of the SEC enforcement investigation.

“In addition to alleging violations of the Advisers Act’s antifraud provisions, the SEC also faults the firm for failing to implement reasonable compliance policies and procedures,” says Cipperman Compliance Services, in a note on the SEC action.

Cipperman states that “some very elementary supervision, operations and compliance infrastructure could have avoided the overcharging and the resulting enforcement action.”

— Check out 4 Reasons the Advisor Compliance Landscape Is So Complex on ThinkAdvisor.