Cetera Investment Advisers LLC, a registered investment adviser affiliated with Cetera Financial Group Inc., will pay a penalty of $185,000 to settle SEC charges that it paid cash fees to approximately 350 banks to solicit investment advisory clients on behalf of the firm without providing proper disclosures to clients.
Cetera Investment Advisers provides investment advisory services to individuals, tax-qualified retirement plans, and other institutions. The firm has been registered with the SEC as an investment adviser since 1984 and has approximately $10.1 billion in assets under management.
The SEC claims that between January 2013 and March 2017, Cetera Investment Advisers generated more than $56 million in advisory fees through its bank networking agreements and shared the “vast majority” of that compensation with the banks.
“Cetera’s clients were not informed of the extent of the banks’ financial interest in the clients’ choice of Cetera as an investment adviser and did not have all of the information that would enable them to evaluate the solicitor’s recommendation,” the SEC stated in its order.
The SEC claims that the violation began under Cetera Investment Advisers’ predecessor, PrimeVest Financial Services Inc., which Cetera Financial Group acquired in 2010.
The SEC claims that Cetera continued PrimeVest’s practice of providing solicitor disclosures only to advisory clients referred by credit unions and not to advisory clients referred by banks. The SEC issued a deficiency letter to PrimeVest in 2006 for this conduct.
In 2007 and 2014, respectively, PrimeVest and Cetera each informed the SEC that they were relying on a no-action letter issued to Kingland Capital Corporation in 1991 that, based on their interpretation, did not require banks solicitors to provide the disclosure to advisory clients.
The SEC noted that, beginning in late 2017, Cetera amended its networking agreements with banks requiring that they provide advisory clients with a separate solicitor disclosure.
Cetera Investment Advisers was censured and agreed to pay a civil penalty of $185,000 without admitting or denying the SEC’s findings.