SEC Enforcement Actions Target Inadequate Disclosures on Conflicts of Interest by Advisory Firms and Broker-Dealers

Who may be interested: Registered Funds, Registered Investment Advisers, Registered Broker-Dealers, Compliance Staff, Boards of Directors

Quick Take: On August 29, 2025, the SEC, in separate actions, sanctioned a registered investment adviser and another registered investment adviser and an affiliated broker-dealer for failing to disclose conflicts of interest due to incentives to enroll clients in the firms’ fee-based advisory programs. The firms were found to have made misleading statements and provided inconsistent disclosures regarding financial incentives that could have influenced employee recommendations. The firms agreed to cease-and-desist orders, censures, and combined monetary relief exceeding $25 million. The two SEC orders are described below.

I. The SEC Settled Proceedings Against a Registered Investment Adviser for Inadequate and Misleading Disclosures

The SEC settled administrative proceedings against a registered investment adviser for failing to adequately disclose material conflicts of interest associated with its fee-based advisory service for retail clients. According to the SEC order (the Order), from August 2020 through December 2023, the adviser used an internal compensation system that financially incentivized its employees in its managed account program to recommend that clients enroll or remain in the managed account program. Employee performance was measured quantitatively and included data regarding the number of enrollees as well as a conversion rate attributable to the employee. Overall incentives included bonuses and salary increases, and promotions that were tied to these quantitative performance measurements, and according to the SEC, employees were incentivized to recommend that clients enroll or remain in the managed account program.

According to the Order, the adviser’s Form ADV Part 2 Brochure for its managed account program disclosed the possibility of discretionary bonuses, but the adviser’s Form CRS and the managed account program brochure supplement stated that managed account program employees received no additional compensation. The adviser also represented on its website that the managed account program employees had no financial or outside incentives when recommending certain products.

The Order found that these disclosures were incomplete and contained contradictory statements about employees’ receipt of incentive compensation tied to product recommendations or enrollment. The SEC order also noted that the adviser failed to develop and implement written policies and procedures reasonably designed to comply with the disclosure requirements under the Advisers Act.

The SEC found that as a result of this conduct, the adviser violated Sections 206(2) and 206(4) of the Advisers Act and Rule 206(4)-7 thereunder. Without admitting or denying the findings, the adviser agreed to pay a $19.5 million in civil penalties, and agreed to a cease-and-desist order and to be censured.

This Order can be found here.

II. The SEC Settled Proceedings Against an Adviser and Affiliated Broker-Dealer for Failure to Adequately Disclose Compensation-Driven Conflicts of Interest to Retirement Plan Participants

The SEC settled administrative proceedings against a registered investment adviser and its affiliated registered broker-dealer (collectively, the firms) for failing to adequately disclose material conflicts of interest and making misleading statements related to recommendations provided to retirement plan participants.

According to the SEC order (the Order), from July 2019 through December 2022, the firms hired employees who were registered both as registered representatives and investment adviser representatives. These employees were compensated in part through bonuses and merit-based salary increases for enrolling participants in the managed account service. According to the Order, both firms encouraged retirement plan participants to enroll in the adviser’s managed account service, which was a discretionary, fee-based advisory program that charged an asset-based fee, but failed to provide complete disclosures about the financial incentives influencing those recommendations. The firms also failed to provide full and fair written disclosure of the capacity in which these employees were acting when making enrollment recommendations – instead, by disclosing that they were dually licensed but not clarifying, the capacity in which they were acting, the Order found that the employees “placed the burden” on retirement plan participants to clarify the capacity in which the employees were acting.

The Order found that the firms’ omitted disclosures rendered various representations false or misleading, particularly, claims by the employees that they were salaried, noncommissioned, or acting solely in the best interest of the retirement plan participants.

The Order also noted that the broker-dealer failed to adopt and implement written policies and procedures reasonably designed to identify and address these conflicts of interest.

The Order found that the adviser violated Section 206(2) of the Advisers Act and the broker-dealer failed to comply with the Disclosure and Conflict of Interest Obligations of Regulation Best Interest. The firms agreed to a cease-and-desist order, and were censured. The firms also agreed to pay a $750,000 civil penalty, and the adviser agreed to pay $4,063,569.80 in disgorgement and over $426,000 in prejudgment interest.

This Order can be found here.