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Financial Services Law Insights and Observations

Bank enters into settlement agreement with SEC for charging advisory fees

Securities SEC Settlement Enforcement Civil Money Penalties

Securities

On August 25, the SEC entered into a settlement agreement with a national bank that requires the bank to pay a $35 million civil penalty for overcharging more than 10,900 investment advisory accounts over $26.8 million in advisory fees. According to the order, the bank and its predecessors agreed to reduce standard advisory fee rates for certain clients when clients agreed to open accounts at the bank via handwritten or typed notes and changes on the clients’ standard investment advisory agreements; however, these reduced rates were not entered into the bank’s billing systems when setting up client accounts. As a result, the clients were overcharged advisory fees for years, because the bank also failed to adopt policies and procedures to prevent overbilling.

The agreement “underscores the need for firms growing their businesses through acquisition to ensure that their growth does not come at the expense of client protection,” said the Director of the SEC’s Enforcement Division, Gurbir S. Grewel. He further noted that “[i]nvestment advisers must adopt and implement policies and procedures to ensure that they honor their agreements with all of their clients, including legacy clients of predecessor firms.” 

In addition to the $35 million civil penalty, the bank also paid affected accountholders approximately $40 million to reimburse clients for the overcharging. The bank did not admit or deny the SEC’s charges set forth in the agreement.