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SEC: California Firm Misled Clients About Fee Markups

TCFG's advisory clients paid fee markups as often as 60% of the time in more than 10,000 executed transactions over the course of several years, according to the SEC complaint.

The Securities and Exchange Commission charged a California-based advisory firm, its CEO and its affiliated broker/dealer with misleading advisory clients about fee markups on their transactions.

According to the SEC complaint filed in California’s Central District, Richard James Roberts, the CEO and president of TCFG Investment Advisors and TCFG Wealth Management, engaged in “fraudulent misconduct” from June 2014 to April of last year. TCFG, which is based in Laguna Niguel, Calif., has been an SEC-registered firm since 2013 and had about $459 million in regulatory assets under management as of March, with 3,090 accounts, according to the commission.

Roberts’ firm offered advisory services for individuals (including high-net-worth clients), as well as charitable organizations, corporations and businesses, and provided financial planning and portfolio management services. According to the commission, TCFG and Roberts disclosed to clients that TCFG Wealth might receive portions of fees charged against clients’ accounts by the firm’s third-party clearing and custody broker firm, not named in the complaint. 

But these particular fees were the design of Roberts and TCFG, the SEC says. The clearing broker would charge these fees to advisory clients and would then pay TCFG Wealth Management. Roberts allegedly created a fee schedule marking up clients’ transactions by as much as 360%. If an individual advisor opted to reduce or not charge the amount of the markups to their advisory clients, the clearing broker would still charge those markups, meaning the advisor would pay the remainder out of their own compensation, according to the complaint. 

According to the commission’s analysis of trading records between December 2015 and November 2020, the firm’s advisory clients paid fee markups as often as 60% of the time in more than 10,000 executed transactions, with TCFG Wealth Management receiving more than $300,000 in markups over that time. In disclosure documents, TCFG allegedly assured clients that such fees were “uncertain” or that they were merely part of the typical fees the clearing broker charged.

“These statements were materially false and misleading,” the complaint read. “First, they said TCFG Wealth Management ‘may’ receive a portion of the fee markups when, in fact, Roberts knew, or was reckless and negligent for not knowing, that TCFG Wealth Management had directed Clearing Broker to charge all TCFG clients fee markups and had done so for up to six years.”

At some point between April 2019 and April 2020 (in which time the SEC conducted a regulatory exam of the TCFG), TCFG updated its disclosure brochures to indicate the firm was responsible for the charged fees. But these updated forms still did not adequately spell out the fee markups and the conflicts they caused, according to the commission.

“Nothing in the Firm Brochures or elsewhere adequately disclosed to TCFG clients that it had an actual conflict of interest because it charged and received fee markups when its affiliate, TCFG Wealth Management, acted as the introducing broker for TCFG clients,” the complaint read.

TCFG could not be reached for comment as of press time. The SEC seeks permanent injunctions against the firms and Roberts, as well as disgorgement with prejudgment interest and civil penalties.

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