SEC risk alert warns of miscalculations in advisory fees

On Behalf of | Nov 17, 2021 | Financial Advisor Misconduct

The Securities and Exchange Commission has issued a risk alert warning that investment advisers are often miscalculating their fees, according to WealthManagement.

The alert was published last week by the SEC’s Division of Examinations following a national examination of about 130 advisers that analyzed the fees charged to retail clients. It found that many clients are being harmed by fee-related miscalculations and deficiencies that resulted in them being overcharged.

Among the issues mentioned were calculation errors that included over-billing of advisory fees, inaccurate calculations of tiered or breakpoint fees, and inaccurate “householding” of accounts, in which advisors did not combine family account values in a way that resulted in lower fees. The examination also found errors in not crediting certain fees due to clients, such as prepaid fees for terminated accounts or pro-rated fees for onboarding clients. In some cases, incorrect client account valuations were used in the calculation of fees.

The alert noted that the Investment Advisers Act of 1940 establishes a fiduciary duty for investment advisers, adding that “Advisers that fail to adhere to the terms of their agreement and disclosures, or otherwise engage in inappropriate fee billing and expense practices, may violate their fiduciary duties and the Advisers Act, including its antifraud provisions.”

The SEC said there were fewer errors when advisers had specific written policies in place regarding calculation and billing of advisory fees. The Division of Examination said it was encouraging advisers to “review routinely, refine, and improve, as appropriate, their fee billing policies, procedures, and practices and address new risks as they are identified.” The alert recommended that advisers centralize their billing process and validate that the fees charged to clients are consistent with compliance procedures, advisory contracts, and disclosures.

Lewitas Hyman routinely represents investors nationwide who were harmed when financial professionals and their firms breached their fiduciary and other duties. If you were the victim of a breach of fiduciary or other duties owed to you by a financial professional or financial firm, contact our Chicago breach of fiduciary duty attorneys at (312-291-4600) or through our online contact form for a no-cost evaluation of your matter.

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