A new round of enforcement actions by the Securities and Exchange Commission this week underscored the agency's determination to clean up advisor marketing.
In the latest actions, nine RIAs agreed to pay $1.2 million in combined civil penalties to settle charges that they made false or umsubstantiated claims in their advertising to investors.
The SEC said they violated marketing rules by disseminating advertisements to investors that included untrue or unsubstantiated claims or third-party ratings that lacked required disclosures, the SEC announced Monday.
It was the third round of such penalties issued by the SEC, and it prompted one compliance firm to issue a warning to advisors.
“Avoid hyperbole,” Iron Road warned in a new note to clients.
The largest penalty was the $325,000 paid by Dallas-based Integrated Advisors Network, which manages about $4.2 billion in assets. The SEC said that Integrated Advisors posted an advertisement on its website claiming it was “a true fiduciary that puts the client first by aligning incentives and eliminating conflicts of interest” from November 2022 to May 30 of this year. But the agency said the claim was belied by conflicts of interest found in the firm's Form ADV.
“As a result, Integrated Advisors lacked a reasonable basis to believe that it would be able to substantiate the claim of eliminating its conflicts of interest upon demand,” the SEC said in the settlement.
“The marketing rule’s provisions regarding truthfulness, substantiation, and disclosure are critical to protecting investors," said Corey Schuster, co-chief of the SEC Division of Enforcement’s Asset Management Unit. "The advertisements at issue in each of these actions violated the marketing rule and posed a serious risk of misleading investors.”
Integrated Advisors Network did not respond to a request for comment.
Richard Bernstein Advisors of New York was second highest with a penalty of $295,000. The SEC said the firm "disseminated an advertisement containing two third-party ratings that did not clearly and prominently disclose the date on which the ratings were given and the period of time upon which the ratings were based."
A representative of Richard Bernstein Advisors said the firm had no comment.
Among the other seven settlements, the SEC found that Abacus Planning Group of Columbia, S.C., and TS Bank's Callahan Financial Planning of Omaha, Neb., published advertisements with untrue statements about third-party ratings. In addition, Callahan Financial posted an advertisement falsely claiming that it was a member of an organization that did not exist, th e SEC said. Abacus agreed to a $150,000 civil penalty and Callahan Financial will a $85,000 penalty, according to the SEC.
Iron Road offered advisors some advice on how to avoid such enforcement actions.
“Statements about being free from conflicts of interest, being a fiduciary and receiving certain awards may seem like embellishment, but they are taken at face value by the SEC. Advisers should be careful,” the compliance firm said in its note.
Any claims that a firm will have a hard time substantiating, including awards and statements relating to the investment process, are likely to be continued focus areas for the SEC, the firm said.
Such infractions and enforcements can be avoided if firms and their compliance vendors do adequate due diligence on marketing materials, ads and testimonials, Iron said.
The SEC’s Schuster warned that sweep exams into firms’ marketing practices are ongoing. RIAs “must comply with all aspects of the marketing rule, and we will continue to hold them accountable when they fail to do so,” Schuster said.
This is the third round of such enforcements by the SEC. In April, the SEC announced charges against five RIAs for marketing misleading hypothetical performance to the general public. In September, the SEC moved against nine advisors for hypothetical performance reporting violations, as well as breaches of the marketing rule’s recordkeeping requirements for advertised performance statements.
The other firms targeted by the SEC in the latest actions, and their associated penalties, are as follows:
• AZ Apice Capital Management of Miami, $70,000.
• Beta Wealth Group of San Diego, $80,000.
• Droms Strauss Advisors of St. Louis, $85,000.
• Howard Bailey Securities of Fort Wayne, Ind., $90,000.
• Professional Financial Strategies of Pittsford, N.Y., $60,000.