AssetMark to Pay $18.3M Over Revenue Sharing

News September 26, 2023 at 11:33 PM
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The Securities and Exchange Commission said Tuesday that it had reached a settlement with AssetMark Inc. over the firm's failure to adequately disclose conflicts of interest involving a cash sweep program operated by an affiliated custodian and its receipt of payments from some other custodians.

As a result of these issues, AssetMark will pay $6.8 million of disgorgement, $2 million of prejudgment interest, and a $9.5 million civil penalty.

The operations of AssetMark, based in Concord, California, include a turnkey asset management platform (TAMP) that lets clients pick "one of several custodians to hold their assets and complete trades, among other services," the SEC order states. One custodian is AssetMark Trust Company, which is affiliated with AssetMark and its parent company AssetMark Financial Holdings.

AssetMark's total platform assets were $102.2 billion on Aug. 31, including both assets under management and assets under advisement. AssetMark Trust Company's client cash was $2.83 billion.

Multiple Failures

From at least September 2016 to January 2021, AssetMark "failed to provide full and fair disclosure of conflicts of interest arising from ATC's cash sweep program, which transferred, or 'swept,' clients' uninvested cash into interest-earning bank accounts," the order states.

Specifically, AssetMark failed to fully disclose "conflicts arising from the fact that AssetMark and ATC were involved in setting the fee that ATC received for operating the cash sweep program," the SEC said.

AssetMark requires clients using its platform to maintain a cash allocation to cover fees and other expenses, typically targeted at 2%.

For clients who selected ATC as a custodian, "ATC generally enrolled clients in its FDIC-Insured Cash Deposit Program … where customer cash was held in FDIC-insured interest bearing accounts at various banks," the order said.

In addition to the asset-based fees AssetMark earned as an advisor, "ATC charged AssetMark clients a fee on assets in the ICD Program, which reduced the amounts of interest remitted from the interest-bearing accounts to clients," the order said.

However, during the relevant time period, "AssetMark failed to provide full and fair disclosure regarding AssetMark and ATC's role in setting the ICD Program fee or the related conflicts of interest."

Further, from at least January 2016 through August 2019, "AssetMark received custodial support payments from certain third-party custodians on the platform without full and fair disclosure of the associated conflicts of interest to AssetMark clients," the SEC order states.

Custodial support payments were contracted amounts paid directly to AssetMark from third-party custodians based on assets held in certain no-transaction-fee mutual funds.

"While AssetMark disclosed receipt of the custodial support payments, it failed to disclose that in some cases there were lower fee share classes with lower expense ratios than the NTF share classes, that would not result in payments to AssetMark," according to the order.

Earlier this month, AssetMark tapped Michael Kim to serve as its CEO, following the departure of Natalie Wolfsen. Wolfsen joined AssetMark in mid-2014, was its CEO since March 2021 and is set to become CEO of Orion Advisor Solutions in mid-October. Assetmark's earlier CEO was Charles Goldman (January 2014 to March 2021); he is now executive chair of Orion's board of directors.

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