Investors in private equity funds run by registered investment advisory firms are getting charged questionable fees and expenses by advisors with conflicts of interest, the Securities and Exchange Commission said in a risk alert Wednesday.

While performing recent exams, the SEC uncovered a wide array of questionable fees and conflicts in RIA-managed private equity and hedge funds, conflicts that caused investors to overpay, the agency said.

The deficiencies meant investors didn’t know about the conflicts of interest posed by the private fund advisors and the funds they invested with.

In conducting routine examinations, the staff members with the SEC’s Office of Compliance Inspections and Examinations said they observed private fund advisors preferentially allocating limited investment opportunities to their own accounts, to new clients, and to clients who paid higher fees. That deprived other investors of investment opportunities “without adequate disclosure,” the regulator said.

Furthermore, the agency found, some RIA advisory firms passed along their own entertainment expenses to private equity investors, in violation of the firms’ own written expense policies. This “potentially resulted in investors overpaying for such expenses,” the SEC said.

More than 36% of RIAs registered with the SEC manage private equity or hedge funds. These vehicles frequently draw significant investments from pensions, charities, endowments and families. And RIAs’ interest in private equity funds is likely to grow now that the U.S. Department of Labor has given 401(k) plans the green light to invest in these funds, whose contracts are complex and opaque when it comes to performance, fees and risks.

In their performance of hundreds of exams, SEC staff found an extensive number of deficiencies in the fees and expenses, which directly impact the returns that investors actually earn, the agency said.

The agency found RIAs ran into several problems when managing private equity. For instance, they inaccurately allocated fees and shared expenses for broken deals; due diligence; and costs for annual meetings, consultants and insurance. These fees were allocated to investors such as private fund clients, employee funds and co-investment vehicles, “in a manner that was inconsistent with disclosures to investors or policies and procedures, thereby causing certain investors to overpay expenses,” the SEC said.

Advisors also charged private fund clients for expenses that were not permitted, including the salaries of advisor personnel, compliance expenses, regulatory filing costs and office expenses. This ran afoul of the RIAs’ own fund operating agreements, the agency said, another reason investors were overpaying.

RIA fund managers also failed to comply with contractual limits on certain expenses that they are allowed to charge to investors—such as legal fees or placement agent fees.

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