SEC Charges Investment Adviser for Compliance Failures Relating to Wrap Fee Programs
Aug. 14, 2018
File No. 3-18638
Washington D.C., August 14, 2018 - The Securities and Exchange Commission today announced an enforcement action against Lockwood Advisors Incorporated, an SEC registered investment advisory firm, for failing to adopt and implement policies and procedures necessary to provide investors with enough information to evaluate the suitability of their investments in the firm's wrap fee programs.
As a sponsor of wrap fee programs, Lockwood offers investors a selection of various subadvisers to choose from, which in turn select investments on their behalf. Those subadvisers typically directly trade through the wrap fee program's participating broker-dealer because the cost of execution is included in the annual wrap fee that each client pays to participate in the program. However, if a subadviser trades away by choosing a different broker-dealer to execute a particular trade, the client often incurs additional transaction costs. The SEC's order found that Lockwood failed to adopt and implement policies and procedures requiring it to gather information about subadvisers' trading away and requiring it to disclose that information to wrap fee program clients so that they could make informed investment decisions. This is one of a series of actions the SEC has brought against investment advisers relating to trading away in wrap fee programs. Wrap fee programs have been among the SEC's National Exam Program's annual examination priorities in each of the last three years.
The SEC's order finds that Lockwood violated Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7 thereunder. Without admitting or denying the findings in the order, Lockwood agreed to settle the charges, to cease and desist from further violations, to pay a $200,000 civil penalty, and to certain undertakings that will improve its policies and procedures.
The SEC's investigation was conducted by Matthew S. Raalf and Assunta Vivolo of the Philadelphia office, and supervised by Kelly L. Gibson and G. Jeffrey Boujoukos. The examination that led to the investigation was conducted by Scott Fisher, Kelli P. Byrne, Joseph Francks, and Michelle Eichner of the Philadelphia office under the supervision of Mark Dowdell.