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A Tuesday decision by the U.S. Court of Appeals for the D.C. Circuit involving The Robare Group in Houston underscores the importance “of thorough and specific conflicts of interest disclosure” in advisors’ Form ADV, according to Chris Stanley, founding principal at Beach Street Legal.

At issue in the case were revenue sharing payments that Robare received from Fidelity Investments when Robare’s clients invested in certain funds offered on Fidelity’s online platform.

Robare Group registered in 2003 as an RIA after being state-registered since 2001.

“From the beginning, TRG used Fidelity Investments for execution, custody, and clearing services for its advisory clients,” states the decision, filed Tuesday. In 2004, TRG entered into the revenue sharing arrangement with Fidelity.

“Though the Court of Appeals agreed with Robare that there was no willful violation of law or intent to defraud its clients, it still agreed with the SEC’s view that Robare negligently failed to provide full and fair conflicts of interest disclosure in its Form ADV,” Stanley told ThinkAdvisor on Tuesday.

Two antifraud provisions of the Investment Advisers Act were at issue in the case, the court explained, noting that they work in tandem: Section 206 governs disclosures to clients, while Section 207 governs disclosures to the SEC.

“The SEC took the position — and the court agreed — that Robare did not provide full and fair conflicts disclosure until it described the Fidelity revenue sharing formula, rates and attendant conflicts of interest,” said Stanley, whose Moraga, California-based firm also provides compliance services for advisors and financial planners.

Stanley adds that it didn’t help Robare’s case “that a decade had elapsed before what the SEC considered to be adequate disclosure of the Fidelity payments was incorporated into its ADV.”

In September 2014, the SEC’s enforcement division instituted administrative and cease-and-desist proceedings against TRG and its principals, Mark Robare and Jack Jones.

“The SEC alleged that they had failed for many years to disclose to their clients and to the Commission the compensation TRG received through its arrangement with Fidelity and the conflicts of interest arising from that compensation,” the ruling states.

Specifically, the SEC alleged that Robare and TRG willfully violated Sections 206, while Jones aided, abetted and caused the violations. Following an evidentiary hearing, an administrative law judge dismissed the charges.

However, SEC Commissioners’ issued a Nov. 7, 2016, opinion, In the Matter of The Robare Group, Ltd., et al., in which they disagreed, reversed the ALJ, and imposed a $150,000 penalty along with a cease-and-desist order, Stanley wrote previously in an article about the case for ThinkAdvisor.

Stanley’s advice to advisors in light of the Robare case: “When crafting conflicts of interest disclosure, be sure to unequivocally identify the conflict, describe the conflict in sufficient detail, and explain how the firm addresses the conflict. Though use of the word ‘may’ and other equivocal language was not a focus of opinion, there is clearly an expectation that vague, generalized and scant references to conflicts will not be acceptable.”