SEC Finds Widespread Advisor Fee Calculation Errors

Examiners found advisors charged advisory fees inaccurately, making a variety of errors.

Inaccurate percentages were used to calculate advisory fees. For example, the staff identified advisors that, among other things: charged fees that were different from contractually agreed-upon rates and used the incorrect fee schedule (e.g., used the schedule intended for clients domiciled in a country other than the United States).

Advisors also failed to convert all clients to their new or updated fee schedule and had errors in fee percentages manually entered into their portfolio management systems.

Also, advisory fees were double-billed. Such errors were typically due to oversights, such as not updating a system following a change in billing practices.

Breakpoint or tiered billing rates were also not correctly calculated. Often these issues related to tiered fee schedules not being applied correctly or applied at all.

Householding of client accounts was not correctly calculated. In such instances, the examined advisors did not aggregate client or family accounts and/or apply the declining fee schedule, as applicable.

The examiners also found deficiencies related to incomplete or misleading Form ADV Part 2 brochures and/or other disclosures, including disclosure that did not reflect current fees charged or whether fees were negotiable and did not accurately describe how fees would be calculated or billed.