Firm Misrepresented Fees, Charged Improper Commissions: SEC

 Commentary  January 11, 2022 at 07:44 AM  Share & Print

What You Need to Know

  • The firm misrepresented fee-related information and failed to disclose conflicts in its Forms ADV Part 2A.

  • CCM’s clients did not receive any offset to their advisory fees for commissions charged by the affiliated BD.

  • CCM improperly charged 11 clients who purchased annuities their advisory IRA accounts a total of $66,635.

The Securities and Exchange Commission has charged Comprehensive Capital Management with misrepresenting fee-related information in its Form ADV, Part 2A and causing clients purchasing variable annuities for their IRAs to be charged commissions.

From 2017 through March 2021, CCM, an RIA based in New Jersey, misrepresented fee-related information and failed to disclose conflicts of interest in its Forms ADV Part 2A concerning commissions paid to an affiliated broker-dealer and its associated persons, resulting in CCM improperly receiving $66,635, according to the SEC’s complaint.

Part 2A of Form ADV requires investment advisors to prepare plain English disclosures of, among other things, the advisor’s fees and conflicts of interest. Advisors are required to deliver a brochure containing all of the information required by Part 2A of Form ADV to clients.
 

From at least January 2017 until May 2019, CCM’s Form ADV, Part 2 brochure stated “that if its affiliated broker received commissions from the sale of variable annuity products in IRA advisory accounts, CCM would offset the advisory fees it charged by the amount of the commissions collected,” the complaint states. “However, during this period, CCM’s clients did not receive any offset to their advisory fees for commissions charged.”

As a result, the order states, “contrary to CCM’s disclosures, its affiliated broker and CCM’s associated persons collected commissions on investment products purchased in clients’ IRA accounts, and CCM charged advisory fees on those same accounts.

Specifically, CCM clients who purchased variable annuity products in their retirement accounts paid commissions to its affiliated broker, at origination and on an ongoing basis. These clients also paid advisory fees to CCM based on the amount of assets under management in the advisory account, which included the variable annuity.”

In May 2019, CCM amended its brochure to remove the paragraph about offsetting commissions and to add a disclosure about its IARs’ conflicts of interest, the SEC said.

“The disclosure stated that the conflict of interest would be mitigated because IARs (in their capacity as registered representatives of its affiliated broker) would not receive commissions from the sale of products into advisory accounts,” the SEC states.

However, CCM’s revised brochure was misleading because CCM’s IARs continued to receive commissions in their capacity as registered reps of its affiliated broker, according to the complaint.

CCM also “still failed to address its own conflict of interest, since its affiliated broker received commissions at the firm level from the sale of investment products,” the SEC said.

Finally, in March 2021, “CCM amended its brochure to address conflicts of interest on behalf of the firm and its IARs. As a result of the misleading disclosures in its 2017 through March 2021 brochures, CCM improperly charged 11 clients who purchased variable annuities into their advisory IRA accounts a total of $66,635,” the complaint states.

 


European Compliance Association

European Compliance Association

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