California-based investment adviser AssetMark agreed to pay more than $18 million to settle allegations by the Securities and Exchange Commission (SEC) regarding undisclosed conflicts of interest involving its affiliate’s cash sweep program and its revenue-sharing arrangements with third parties.
AssetMark agreed to pay a $9.5 million penalty and disgorgement and prejudgment interest of more than $8.8 million. The firm, a wholly owned subsidiary of AssetMark Financial Holdings, consented to a cease-and-desist order requiring it to be censured and meet certain compliance undertakings, the SEC announced in a press release Tuesday.
AssetMark breached its fiduciary duty to clients by failing to disclose its fellow subsidiary, ATC, profited from the cash sweep program, the SEC said. Further, AssetMark allegedly received support payments from certain third-party custodians without full and fair disclosure of the associated conflicts of interest.
The details: From at least September 2016 to January 2021, ATC’s cash sweep program transferred clients’ uninvested cash into interest-earning bank accounts, according to the SEC’s order.
In addition to asset-based fees AssetMark earned as an adviser, ATC charged AssetMark clients a fee on assets in the program, which reduced the amounts of interest remitted from the interest-bearing accounts, the SEC said.
From at least January 2016 through August 2019, AssetMark disclosed receipt of the custodial support payments but failed to disclose to clients in certain cases lower fee share classes that would not result in payments to AssetMark, the SEC alleged.
Compliance considerations: The SEC found AssetMark did not implement written policies and procedures reasonably designed to disclose all material facts regarding its affiliate’s cash sweep program and receipt of the support payments.
The agency ordered the firm to complete certain compliance undertakings, including:
- Within 30 days, review and correct relevant disclosure documents in ATC’s cash sweep program;
- Within 30 days, evaluate, update, and review its policies and procedures so they are reasonably designed to prevent further violations;
- Within 60 days, notify affected investors of the terms of the order; and
- Within 90 days, provide written certification of compliance with these undertakings.
In its most recent quarterly filing, AssetMark Financial Holdings disclosed it reserved $20 million for a potential SEC settlement.
AssetMark did not respond to a request for comment. The company agreed to the settlement without admitting or denying the SEC’s findings.