SEC Charges Investment Adviser with Failing to Disclose Conflicts and Orders It to Repay Over $4.6 Million to Harmed Investors
Feb. 25, 2022
February 25, 2022 - The Securities and Exchange Commission today announced settled charges against registered investment adviser Ameritas Advisory Services, LLC for breach of fiduciary duty to advisory clients for failures regarding conflicts disclosures, best execution, and duty of care.
The SEC's order finds that Ameritas Advisory Services LLC, when its advisory business was part of an affiliated dually registered investment adviser/broker dealer firm, failed to provide full and fair disclosure regarding conflicts associated with the affiliate's receipt of certain compensation from its clearing broker since at least February 2014. As set forth in the order, this compensation included: (1) revenue sharing payments as a result of advisory clients' investments in certain mutual funds and money market funds; (2) markups on advisory clients' transaction fees; (3) revenue received from the rate of margin interest charged to advisory clients; and (4) an annual business development credit based on the affiliate maintaining, within a range, minimum accounts, asset balances, and trading volumes in certain revenue sharing paying mutual fund programs and margin accounts. According to the order, Ameritas Advisory Services LLC also breached its duty to seek best execution by causing certain advisory clients to invest in share classes of mutual funds and money market funds when share classes of the same funds were available to the clients that presented a more favorable value for these clients and breached its duty of care by failing to undertake an analysis to determine whether the particular mutual fund and money market fund share classes it recommended were in the best interests of its advisory clients. Finally, the order finds that Ameritas Advisory Services LLC failed to adopt and implement written compliance policies and procedures reasonably designed to prevent these violations.
The SEC's order finds that Ameritas Advisory Services LLC violated Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7 thereunder. Without admitting or denying the findings, Ameritas Advisory Services LLC consented to a cease-and-desist order and a censure, and agreed to pay disgorgement of $3,334,804, prejudgment interest of $543,390, and a civil money penalty of $750,000. Ameritas Advisory Services LLC has also agreed to distribute funds to harmed investors and comply with certain undertakings.
The SEC's investigation was conducted by John Mulhern and Kimberly L. Frederick from the Asset Management Unit in the Denver Regional Office. John Farinacci, an industry expert in the Asset Management Unit, assisted with the investigation.