By Alex Leonard, Director, U.S.
On September 3, 2024, the U.S. Securities and Exchange Commission (SEC) instituted proceedings against International Assets Investment Management, LLC (the Adviser). Without admitting or denying the SEC’s findings, the Adviser agreed to settle the charges and pay disgorgement, prejudgment interest, and a civil penalty, totaling $900k.
The Adviser provides investment advisory services, portfolio management, education funding, and estate and retirement planning services to individuals, trusts, estates, and other business entities. International Assets Advisory, LLC (the affiliated broker-dealer) is a broker-dealer that shares common ownership, office space, management and employees with the Adviser.
The proceedings arose out of the Adviser’s alleged failure to provide full and fair disclosures to its clients regarding the following compensation and financial incentives that its affiliated broker-dealer received from an unaffiliated clearing broker:
- An incentive payment from the clearing broker contingent on the conversion of customer accounts to the clearing broker
- Revenue sharing payments from advisory client investments in the clearing broker’s FDIC-insured bank deposit cash sweep program
- Revenue sharing payments from the clearing broker on the rate of interest charged to advisory clients on margin loans and lines of credit
Furthermore, the Adviser allegedly failed to adopt and implement written compliance policies and procedures related to the conflicts arising from the receipt of financial incentives and revenue sharing.
Like all registered investment Advisers, the Adviser has an obligation to disclose all material facts to its advisory clients relating to the advisory relationship, including any conflicts of interest between itself and its clients. The SEC emphasized the role a firm’s Form ADV Part 2A Brochure plays in providing adequate disclosure to clients.
Takeaways for Advisers, especially those with affiliated service providers:
- Ensure advisory clients are provided with detailed disclosures at the outset of an engagement and are updated of material changes as needed
- Leverage the ADV Part 2A Brochure as a primary disclosure document
- Review disclosures across entities for consistency
- In this case, the affiliated broker-dealer had disclosed part of the revenue sharing payments in their Regulation BI Disclosure, but the Adviser didn’t have similar disclosures on their ADV 2A Brochure
- Implement policies and procedures designed to identify and disclose conflicts
At IQ-EQ, our compliance consultants have the experience to handle all U.S. regulatory requirements of the SEC and will work closely with you to keep your firm compliant in the face of new and evolving rules. Find out more about our U.S. compliance consulting services.
About the author
Alex Leonard is a Director in IQ-EQ’s Regulatory Compliance department. With over seven years at IQ-EQ, Alex has assisted private fund managers navigate SEC registration, develop and implement tailored compliance programs, and prepare for SEC examinations. Alex obtained his B.B.A in Finance from Southern Methodist University, J.D. from New York Law School, and is a licensed attorney in the state of New York.
