The SEC this afternoon filed a complaint against Richard J. Roberts, a California-based investment advisor, and two firms he manages alleging that a failure to disclose fee structures and conflicts of interest cost clients more than $300,000 in obfuscated markups.
According to the filing, Roberts, who lives in Laguna Niguel, Calif., is the sole managing member of TCFG Investment Advisors and TCFG Wealth Management, which were both formed in 2012, the former as a registered investment advisory firm and the latter as a registered broker-dealer. The two companies are currently held by Certus Financial Corporation, in which Roberts has more than a 60% share, and Roberts himself holds Series 7, 24, 53 and 63 licenses, according to the SEC.
TCFG Investment Advisors as of earlier this year had about $459 million in regulatory assets under management on behalf of some 3,090 accounts, all but $28 million of which are managed on a discretionary basis, the SEC said. These clients were individuals, high-net-worth individuals, profit sharing plans, charitable organizations, corporations and other businesses, and services provided included financial planning and portfolio management.
According to the SEC, the advisory firm charged its advisory clients through hourly rates, fixed fees and a percentage of the assets it managed, typically 2%. Most of the firm’s 30 investment advisors were also registered representatives of TCFG Wealth Management, the affiliated broker-dealer. However, TCFG Wealth Management did not have actual custody of any accounts. Instead, it was being used as the introducing broker, and a separate clearing broker operated as the third-party clearing and custody firm.
The SEC alleged that Roberts entered into a clearing agreement on behalf of TCFG Wealth Management and with the clearing broker that defined how much the clearing broker would charge TCFG Wealth Management when executing and clearing trades on behalf of the advisory clients. In addition to the clearing broker’s standard fees and charges, the agreement allowed TCFG Wealth Management, as the introducing broker, to include fee markups and to pass those on to the advisory clients. The clearing broker would collect those fees and remit payment back to TCFG Wealth Management, the filing said.
Those fee markups ran from up to 200% on bonds, up to 250% on mutual funds to up to 360% on common stocks, according to the filing, and although individual investment advisors at TCFG Investment Advisors could elect to reduce the markups to their clients, or not charge them at all, the clearing broker would still charge the fees to be paid out of the individual advisors’ own compensation.