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New SEC Risk Alert – Advisory Fees are in the Crosshairs Again

By Robert D. Conca, Partner of Shustak Reynolds & Partners, P.C. posted on Thursday, November 18, 2021.

Robert D. Conca

Robert D. Conca

Partner

Location: San Diego, California
Phone: (619) 696-9500 (Ext. 121)
E-mail
[email protected]

On November 10, 20201, the SEC’s Division of Examinations issued a Risk Alert relating to investment adviser’s fee calculations.  The deficiencies discussed in the Risk Alert stem from a nationwide SEC exam initiative that focused on fees charged to retail clients. 

This Risk Alert focuses on a litany of advisory fee practices, including accuracy of fees charged to clients, accuracy of disclosures relating to advisory fees, and whether an adviser has proper compliance policies relating to fee practices.  SEC Staff observed fee issues in these areas, among others:

  • Inaccurate fee percentages used;
  • Clients were “double-billed”;
  • Incorrect application of fee breakpoints;
  • Numerous errors relating to “householding”[1] of client accounts;
  • Failure to refund prepaid fees on a pro rata basis;
  • Inaccurate description of fee practices in Form ADV; and
  • Missing or inadequate policies and procedures relating to advisory fee billing.

Indeed, advisors should find the recent Risk Alert to cover some familiar ground since the SEC issued a similar Risk Alert detailing nearly identical advisory fee issues in 2018 (see here for the Prior Risk Alert).

By now, it should be clear that the SEC considers the advisory fee to be a fundamental part of any advisory relationship between the adviser and the client.  As the Risk Alert states, “every dollar an investor pays in fees and expenses is a dollar not invested for the investor’s benefit.”

Given this noteworthy regulatory focus on advisory fees, investment advisers will be expected to ensure that their fee calculation and billing practices are implemented and disclosed appropriately.  In addition, policies and procedures should be reviewed and amended as needed so that they accurately describe advisory fee practices.

Advisers need to make advisory fees a regulatory compliance a priority.  We can help.

Shustak Reynolds & Partners, P.C. focuses its practice on securities and financial services law and complex business disputes.
We represent many investment advisors, financial professionals, broker-dealers, registered representatives, investors and businesses.
Attorney Robert D. Conca can be reached in the firm’s San Diego office at (619) 696-9500.



[1] “Householding” is generally defined as combining the assets under management in certain related accounts so that all accounts qualify for a lower advisory fee.

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