In a recent development, a national bank has entered into a settlement agreement with the Securities and Exchange Commission (SEC). This move comes after allegations of the bank overcharging more than 10,900 investment advisory accounts to the tune of over $26.8 million in advisory fees. Subsequent to the agreement, the bank is required to pay a $35 million civil penalty, according to the details provided by Orrick, Herrington & Sutcliffe LLP.
The bank and its predecessors had reportedly agreed to reduce standard advisory fee rates for certain clients. Such agreements were often documented through handwritten or typed notes and alteration of the clients’ standard investment advisory agreement. Despite these agreements, standard rates were applied to many client accounts which resulted in overcharges.
The SEC’s order highlights the importance of strict compliance controls and accurate disclosure to clients about advisory fees. It underlines the SEC’s commitment to hold institutions accountable for harm caused to consumers due to alleged unfair charging practices.
Law firms and corporations must take this settlement as an opportunity to reassess their strategies for fee calculation and disclosure to clients. It is paramount for these entities to ensure that they are in compliance with all regulatory requirements in order to avoid costly settlements and potential reputational damage.