SEC Cautions Use of "May" Statements in Advisor Disclosures

June 28th | 2019

On April 30, 2019, the District of Columbia Court of Appeals upheld charges of negligent violations of the Advisers Act brought against The Robare Group (“TRG”) by the SEC’s Division of Enforcement.

The SEC alleged that TRG, a registered investment adviser, failed to adequately disclose a payment arrangement in their ADV in which Fidelity compensated TRG for certain client investments facilitated by Fidelity.

Investment advisers must provide “full and fair” disclosure of all material conflicts of interest, such as TRG’s payment arrangement with Fidelity. TRG relied on the industry practice of describing similar payment arrangements as a type of conflict or event that “may” occur. However, both the court and the SEC determined that TRG’s uncertain “may” disclosure was neither full nor fair.

The court held that the use of uncertain “may” statements may fall short of being sufficient for ADV disclosure purposes. When describing regularly occurring conflicts, “may” statements wrongly suggest that an actual conflict is not a material fact that clients need be informed of, and does not enable clients to understand the source and nature of conflicts in a meaningful way. In light of this ruling, advisers should consider revisiting their ADV responses to ensure that they continue to meet ever-evolving disclosure requirements, which can sometimes change with the flick of a pen, regardless of any long-standing practices.

While complying with rapidly-changing rules and regulations can seem like an impossible feat even for the most seasoned of industry veterans, the right compliance firm can help. At Titan Regulation, we stay at the ready so you don’t have to. Feel free to contact us to learn more about what Titan Regulation can do for you and your business, and why you should #tradeuptotitan.

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