For firms and advisors, that means that the SEC is honing increasingly sophisticated inhouse data on the use of wrap-fee programs and their disclosures—especially when clients are charged additional fees that may not be needed—as well as undisclosed “trading away” fees.
“There are all sorts of ways to use technology to slice and dice data and apply analytics to look for all kinds of problems—by product, by investor type, by location, by sales or trading practice, by fee, you name it,” Avakian said in a speech in October.
There are a number of “tools and techniques that can be used across data sets to identify suspicious activity, make connections and aggregate and analyze information,” she added.
For firms, that’s meant that the SEC’s wrap-fee enforcement actions that began last year have continued into 2017. Investment Advisor Stifel, Nicolaus & Company Inc. in St. Louis settled an SEC complaint for $300,000 in March. The regulator alleged that “Stifel failed to adopt and implement adequate policies and procedures to track and disclose trading away practices by certain of the sub-advisers participating in the wrap fee programs,” the SEC said in its administrative proceeding. Stifel settled the charges without admitting or denying the findings.
The SEC took issue with Stifel’s alleged subadvisors’ trading practices, or “trade aways,” which were executed at brokers other than Stifel and incurred additional charges that were not disclosed to wrap fee clients.