October 31, 2019

David Williams Comments on Compensation Conflicts of Interest Involving Dually-Registered Advisors

In its recap of a recent blog post by Drinker Biddle’s Best Interest Compliance Team, Financial Advisor reports that Securities and Exchange Commission (SEC) examiners are still finding advisors—specifically dually-registered advisors—are not fully disclosing or eliminating compensation conflicts of interest, and now is a critical time for firms to evaluate and fix their practices.

The publication turned to Chicago partner David Williams for additional insight.

It’s no secret that SEC examiners continue to uncover dually-registered advisors and firms that are not disclosing or eliminating conflicts of interest with regard to their compensation practices. Problems include mutual fund share class recommendations and revenue sharing arrangements, but also financial conflicts related to compensation, types of fees and undisclosed mark-ups, Williams said.

The SEC FAQs come a year after the Division of Enforcement announced its Share Class Selection Disclosure Initiative asking firms to self-report conflicts and almost 11 months after the Division of Enforcement initiated a surprise regulatory “sweep” looking for revenue sharing violations.

Financial Advisor reports that in total, these SEC enforcement actions have cost broker-dealer RIAs hundreds of millions of dollars in fines and customer reimbursements.

“The key takeaway is that advisors must eliminate or disclose all conflicts that might incentivize the adviser to render advice that is not disinterested or not in the best interest of its client,” Williams said.

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