The Securities and Exchange Commission (SEC) recently announced other notable examples of the scrutiny being applied to investment advisers’ disclosures of conflicts of interest. The criticism is notably sharp on issues involving fees and costs associated with advisory services.
Of course, there are the well-publicized actions involving the disclosure of 12b-1 fees pursuant to the share class initiative. On March 11, 2019, the SEC announced that 79 investment advisory firms had agreed to return over $125 million to clients in connection with the SEC’s “Share Class Initiative.”
For purposes of this short post, we’ll detail the SEC’s March 5, 2019 regulatory action involving Valley Forge Asset Management, LLC (Valley Forge). The SEC’s action, which resulted in over $5 million in sanctions, centered on Valley Forge’s disclosures to its clients about the brokerage options available to its clients and specifically the costs and services associated with Valley Forge’s own brokerage firm. The action is a reminder of the importance of assessing whether a conflict, or potential conflict, is actually present or just “may” be present. In that regard, we continue to caution that an investment adviser’s use of “may” in connection with conflicts disclosures increases its regulatory risk. Continue Reading You WILL (not May) Face the Heat