Osaic Wealth, Affiliate BDs Broke Custody Rule: SEC

The Securities and Exchange Commission said Friday that it has fined Osaic Wealth and its affiliate broker-dealer firms — SagePoint Financial, Woodbury and FSC Securities — for violating the agency’s custody rule.

Formerly Advisor Group, Osaic Wealth announced on June 21 its rebranding and started consolidating its eight independent broker-dealers.

“While the other firms named in the [SEC] matter now operate under the legal entity that is Osaic, they still operate under their legacy names, hence Osaic the firm was fined,” Osaic said in a statement shared with ThinkAdvisor. Osaic is ”pleased to have resolved this complex and technical matter and have implemented changes to resolve the issues noted in the order.”

According to the SEC orders, from June 2017 to December 2022, Osaic Wealth and the three broker-dealers each failed to obtain verification by an independent public accountant of client funds and securities of which the firms had custody.

Each firm was ordered to pay a $100,000 penalty.

Osaic Wealth used a form agreement to govern certain aspects of the relationship among Osaic Wealth, its clients, and a clearing agent Osaic Wealth used, the SEC order stated.

“Each of these agreements included a margin account agreement that contained language, required by the Clearing Agent, that permitted the Clearing Agent to accept, without inquiry or investigation, any instructions given by Osaic Wealth concerning these clients’ accounts.”

As a consequence of Osaic Wealth “having this authority with respect to the client funds and securities in the Affected Accounts, Osaic Wealth had custody of these assets,” the SEC said.

Because Osaic Wealth “failed to obtain verification by actual examination of the client funds and securities” in the affected accounts by an independent public accountant, Osaic Wealth violated Section 206(4) of the Advisers Act and Rule 206(4)-2 thereunder, commonly referred to as the custody rule.

The custody rule requires that registered investment advisors who have custody of client funds or securities implement an enumerated set of requirements to prevent the loss, misuse or misappropriation of those assets.

According to the order, during the relevant period, the clearing agent worked with more than 83,000 Osaic Wealth advisory clients’ funds and securities under management.

In August 2020, in connection with an ongoing exam of Osaic Wealth, the SEC Division of Examinations expressed in writing “concerns” regarding the language in the customer agreements and stated that Osaic Wealth “appeared to have violated the Custody Rule,” according to the order.

In November 2020, Osaic Wealth responded that it believed it was in compliance with the custody rule, the order said.

On May 18, 2023, Osaic Wealth removed the language from its customer agreements, according to the order.

In August 2023, “Osaic Wealth engaged an independent public accountant to verify by actual examination the client funds and securities for accounts subject to the Customer Agreements during the calendar year 2023,” the SEC said.

Osaic Wealth did not respond to a request for comment.

Photo: Diego M. Radzinschi/ALM