Paradigm also inaccurately disclosed that it aggregated the assets of certain clients who maintained multiple accounts at the firm to determine advisory fees, the agency said.
“Because many clients agreed to pay Paradigm a tiered advisory fee with a rate that declined as the value of client assets increased, certain clients who maintained multiple advisory accounts would have benefitted from account aggregation through lower fees,” the SEC said.
Despite the contrary disclosures, Paradigm never aggregated client accounts, the SEC found. Had Paradigm consistently aggregated multiple accounts held by certain clients as disclosed, 63 client accounts would have paid $19,442.04 less in total advisory fees between 2016 and 2019, the SEC found.
Paradigm agreed to be censured, to pay a civil money penalty of $50,000 and disgorgement of $343.203.04 with prejudgment interest of $46,900.94 as part of the settlement.
The SEC’s Division of Examinations sounded the alarm on September 1 about wrap fee programs after it examined 100 firms and found frequent deficiencies in areas including the tracking and monitoring of the programs, as well as disclosures about conflicts, fees and expenses, according to an alert issued by the agency.
Clients in wrap fee programs pay an asset-based “wrap fee” that covers investment advice and brokerage services. The wrap fee is generally based on a percentage of the value of the client’s account in the wrap fee program, the SEC said.
The agency said examiners are scrutinizing wrap fee programs because they are attracting more investor assets and have a history of issues regarding conflicts and disclosures.