January 20, 2021

Wrap Fee Programs Under Continued Scrutiny and Use of Investment Advisory Product Committees

Enforcement Highlights Blog

Further to the Securities and Exchange Commission (“SEC” or the “Commission”)’s ongoing review of investment advisers offering wrap fee programs, on December 23, 2020, the Commission announced a settlement with Pruco Securities, LLC (“Pruco”) related to alleged breaches of fiduciary duty in connection with its wrap fee programs. Pruco agreed to pay disgorgement, interest, and civil penalties totaling over $18.2 million to compensate for its alleged breaches of its fiduciary duties to its advisory clients that participated in its wrap fee programs. In short, the SEC alleged that Pruco breached its fiduciary duties and violated Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 (the “Advisors Act”), and Rule 206(4)-7 thereunder, by failing to disclose certain fees, savings, and revenue sharing payments it received in connection with its wrap fee programs, and the associated conflicts of interest related thereto, and by failing to assess whether the wrap fee programs were and remained suitable for the clients participating in them, as it represented it would.

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