Cetera Investment Advisers, the corporate registered investment advisor of Cetera Financial Institutions, which is the firm’s broker/dealer for banks and credit unions, was censured and fined $185,000 by the Securities and Exchange Commission for failing to disclose solicitation agreements it had with about 350 banks.
The SEC order alleges that as far back as January 2007, before predecessor PrimeVest Financial Services was acquired by Cetera Financial Group in 2010, the RIA had been paying those banks to solicit investment advisory clients. SEC rules prohibit RIAs from paying for solicitation unless it’s disclosed to the clients.
A spokesman for the firm declined to comment on the order.
From January 2013 to March, the firm made more than $56 million in advisory fees through the solicitation agreements, the vast majority of which was shared with the banks, the SEC says.
“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 order said.
In 2007, the corporate RIA (then PrimeVest) changed its solicitation agreements with credit unions requiring the disclosure to those firms’ clients. Yet, it also altered its agreements with banks to remove the disclosure requirements in that channel, citing a no-action letter issued to Kingland Capital Corporation in 1991 as guidance. The SEC says that letter did not reference the Solicitor Rule but rather allowed banks to maintain certain networking arrangements with investment advisors.
When Cetera acquired the firm in 2010, it continued the practices until 2017, when it instituted required disclosures in the bank networking agreements.
The corporate RIA, which operates out of Schaumburg, Ill., has about $10.1 billion in assets under management.