AssetMark agreed to pay more than $18 million to settle allegations it failed to disclose conflicts of interest on cash sweep programs and revenue-sharing payments it received from custodians, the Securities and Exchange Commission said Tuesday.
Without admitting or denying guilt, Calif.-based AssetMark, which at $100.8 billion in assets and 9,300 advisor relationships is one of the advisor industry’s largest turnkey asset management providers (TAMPs), agreed to pay a civil penalty of $9.5 million and disgorgement and prejudgment interest of more than $8.5 million, all of which will be distributed to harmed investors, the SEC said. The company did not respond to a request for comment.
“Investment advisors have a fundamental duty to disclose conflicts between their own financial interests and those of their clients,” Andrew Dean, co-chief of the SEC Enforcement Division’s Asset Management Unit, said in a statement.
The firm “failed to disclose multiple financial conflicts of interest where AssetMark and its affiliated custodian reaped significant financial benefit from decisions it made,” Dean added.
According to the SEC’s order, from 2016 to 2021, AssetMark failed to tell clients through “full and fair disclosure” of conflicts of interest arising from the fact that it offered clients an affiliate’s cash sweep program as default, which swept clients’ uninvested cash into a bank account.
“AssetMark did not advise clients that it helped set the fee that its affiliate custodian received for operating the cash sweep program. The fee reduced amounts of interest paid to those clients,” the regulator said.
In addition, the SEC said custodians paid AssetMark revenue-sharing payments based on assets held in no-transaction-fee mutual funds which carried higher fees.
From 2016 to 2019, AssetMark failed to disclose to clients that many of the same funds offered share classes with lower expense ratios, when they existed. If the nearly 250,000 investors who use AssetMark didn’t use the lower-priced share classes, the firm would not have been paid revenue-sharing fees, the SEC said.
AssetMark renegotiated its agreements with custodians to eliminate support payments in 2021, the SEC reported. The company announced in early September it was replacing CEO Natalie Wolfsen with Michael Kim, AssetMark’s president since March 2021, according to news reports.