August 13, 1990
TO: INVESTMENT ADVISER MEMBERS NO. 41-90
RE: INVESTMENT ADVISER CENSURED FOR FAILURE TO DISCLOSE CERTAIN
FEES TO CLIENTS
__________________________________________________________
A registered investment adviser recently settled charges
brought against it by the Securities and Exchange Division for
failing to properly disclose certain fees charged customers. A
copy of the Commission's order is attached.
Specifically, the Commission found that the adviser
violated the antifraud provisions of the Advisers Act by failing
to disclose adequately the payment of multiple fees to it. The
adviser, in addition to managing individual clients' accounts, is
the manager of a cash accumulation fund which pays it a fee based
on a percentage of the assets in the fund. Pursuant to "sweep"
arrangements with an affiliated broker, the adviser invested cash
balances of certain customers in the fund. Thus, those customers
paid both a direct management fee to the adviser and an indirect
management fee through the fund under the "sweep" arrangement.
The receipt of these multiple fees was not adequately described
to customers.
The Commission also found that the affiliated broker-
dealer earned "float benefits" on certain customers' funds prior
to the investment for the benefit of the customers. The receipt
of float benefits was not violative, but the Commission found
that the adviser failed to make effective disclosure to its
clients of those benefits. In addition, the Commission found
that the adviser failed to offer certain disclosure documents and
to maintain certain records required under the Advisers Act.
The Commission, noting that the affiliated broker's retail
business had been sold and that it no longer earns float
benefits, censured the adviser requiring it to maintain certain
internal controls, procedures and records to ensure compliance
with the Advisers Act.
Amy B. Rosenblum
Assistant General Counsel
Attachment