Nine RIA firms fined $850K by SEC for marketing rule violations

The Securities and Exchange Commission has fined nine RIAs that advertised hypothetical performance to the public, contrary to the regulator’s Marketing Rule.

The firms had not adopted or had not implemented policies and procedures “reasonably designed to ensure that the hypothetical performance is relevant to the likely financial situation and investment objectives of the intended audience of the advertisement” as required by the rule, according to an SEC statement.

In a sweep, the SEC found that the charged firms were advertising to mass audiences on their websites and two of the firms had not kept copies of the advertisements.

Without admitting or denying the charges, the nine firms agreed to pay penalties of a combined $850,000. The individual firms’ civil penalties ranged between $50,000 and $175,000. They also agreed to be censured, to cease and desist from violating the charged provisions, and to comply with undertakings not to advertise hypothetical performance without having the requisite policies and procedures.

“Because of their attention-grabbing power, hypothetical performance advertisements may present an elevated risk for prospective investors whose likely financial situation and investment objectives don’t match the advertised investment strategy,” Gurbir S. Grewal, director of the agency's division of enforcement, said in the statement. “It is therefore crucial that investment advisers implement policies and procedures to ensure their compliance with the rule.  Until that is the case, we will remain vigilant and continue our ongoing sweep to ensure that investment advisers comply with the Marketing Rule, including the requirements for hypothetical performance advertisements.”

FIRMS FINED

The firms caught in the sweep were:

• Banorte Asset Management Inc.
• BTS Asset Management Inc.
• Elm Partners Management
• Hansen and Associates Financial Group Inc.
• Linden Thomas Advisory Services
• Macroclimate
• McElhenny Sheffield Capital Management
• MRA Advisory Group
• Trowbridge Capital Partners