The publicly-traded turnkey asset management platform AssetMark will pay $18 million to settle charges from the Securities and Exchange Commission that it failed to disclose multiple conflicts of interest related to a cash sweep program and custodial support payments.
The regulator claims that from September 2016 to January 2021, the Concord, Calif.-based TAMP and its affiliated custodian, AssetMark Trust Company, were setting the fee for operating a cash sweep program, and the firm did not disclose that conflict of interest to clients.
Clients on the AssetMark platform must hold some cash allocation to cover fees and other expenses, typically at around 2%, and ATC is one of the custodians they can choose for those assets. Clients who chose ATC as their custodian would generally go into its FDIC-Insured Cash Deposit Program, and clients in that program would be charged a fee on assets, reducing the amount of interest paid to them.
“Investment advisors have a fundamental duty to disclose conflicts between their own financial interests and those of their clients,” said Andrew Dean, co-chief of the SEC Enforcement Division’s Asset Management Unit, in a statement. “Here, AssetMark failed to disclose multiple financial conflicts of interest where AssetMark and its affiliated custodian reaped significant financial benefit from decisions it made.”
The SEC also claims that from January 2016 to August 2019, AssetMark was receiving custodial support payments from third-party custodians based on assets held in certain no-transaction-fee mutual funds.
“While AssetMark disclosed receipt of the custodial support payments, it failed to disclose that in some cases there were lower fee share classes with lower expense ratios than the NTF share classes, that would not result in payments to AssetMark,” the SEC order said.
The SEC also said the firm failed to implement the proper written policies and procedures to prevent such violations.
The TAMP did not admit nor deny the SEC’s findings, and it consented to a cease-and-desist order requiring it to be censured, in addition to the payment.
The company did not immediately respond to a request for comment.
AssetMark recently named a new chief executive, Michael Kim. He succeeds Natalie Wolfsen, who left the firm to join Orion Advisor Solutions as its new CEO.