SEC Fines HSBC Securities $725,000 over Adviser Compensation Misstatements
HSBC Securities Inc., a registered investment adviser and broker-dealer, has agreed to pay the Securities and Exchange Commission $725,000 for allegedly made false and misleading statements to advisory clients regarding the compensation of its dual-registered investment adviser representatives.
HSBC Securities Inc., a registered investment adviser and broker-dealer, has agreed to pay the Securities and Exchange Commission $725,000 for allegedly making false and misleading statements to advisory clients regarding the compensation of its dual-registered investment adviser representatives in its retail banking and wealth management business.
The SEC alleges that between November 2015 and August 2017, HSBC failed to disclose conflicts of interest regarding the factors used to determine compensation for investment adviser representatives.
In its Form ADV and wrap fee program brochures, HSBC stated that its representatives were not compensated based on fees for its advisory programs, and that compensation was based on non-financial factors. However, the SEC claims that several financial factors were considered, including the amount of advisory fees clients paid to HSBC.
HSBC provided investment advisory services to retail advisory clients through two programs, HSBC Spectrum and Managed Portfolio Account, where clients paid a quarterly advisory fee based on assets under management in the accounts.
However, beginning in 2013, HSBC began using a compensation framework where representatives received a fixed salary with the possibility to earn a discretionary bonus on a quarterly and annual basis. The SEC said that HSBC used several financial and non-financial factors to evaluate the rep’s performance and determine their discretionary compensation, including the amount of advisory fees that Spectrum and MPA clients paid to HSBC each quarter.
While HSBC’s customer agreement disclosed that conflicts of interest “may” arise with respect to recurring income to the firm, the SEC alleges that the disclosures were misleading because they stated that reps did not receive compensation based on advisory fees. The SEC also claims the firm failed to disclose that reps had a financial incentive to generate advisory fees since they were tied to their discretionary bonuses.
HSBC Securities, without admitting or denying the SEC’s findings, was censured and agreed to pay a $725,000 fine.
HSBC Securities provides investment advisory, brokerage, and other services to retail through approximately 200 investment adviser representatives, known as premier wealth advisors, premier relationship advisors, or financial advisors. The company has approximately $3.1 billion in assets under management.
