A North Carolina-based investment advisor overcharged clients’ advisory fees by at least $367,000, according to a new order from the Securities and Exchange Commission.
The SEC charged Stephen Brandon Anderson of now-defunct River Source Wealth Management with fraud, claiming he overcharged clients by about 40% more than the agreed-upon maximum.
The regulator also says he misled clients as to why the firm’s longtime custodian stopped doing business with him and inflated River Source’s assets under management by millions in 2015 and 2016 in disclosure forms submitted to the commission.
“When advisors breach their duty to clients by misleading and overcharging them, they can expect the SEC will craft a package of remedies that will compensate harmed investors, provide additional safeguards for prospective investors, and deter similar conduct,” said Carolyn M. Welshhans, an associate director for the SEC’s Division of Enforcement.
Anderson co-founded River Source Wealth Management in 2009 and became its sole owner in 2013, according to the SEC. Anderson charged advisory fees that were to be a percentage of each client’s AUM and included in a fee schedule signed by Anderson and each client. However, in 2015 and 2016, he overcharged at least $185,816 and $181,360 in fees, respectively, charging the majority of his clients more than the firm’s maximum established fee rate in both years. Anderson filed for personal bankruptcy in November 2016 and is now an investment advisor representative at Foundations Investment Advisors, according to the SEC order (most of his clients continued with him after River Source ended). He offered advisory services through Balsam Capital Group, which the SEC said he developed to market his services, both with Foundations Investment Advisors and previously River Source.
Ernest J. C'DeBaca, the general counsel and chief compliance officer at Foundations Investment Advisors, said that while the firm was aware there was an investigation underway, the order's contents were more shocking than expected, and the firm was terminating its relationship with Anderson.
Balsam Capital Group did not immediately return a request for comment.
On River Source’s Forms ADV sent to the SEC, he overstated the firm’s AUM total by $34 million in 2015, and by $61 million in 2016, according to the SEC. He also did not disclose two previous lawsuits filed against him by previous River Source clients, as he was mandated to do.
He told clients that he had an “amicable” break with his longtime custodian, but according to the SEC, the custodian stopped working with Anderson “after it noticed irregular billing practices, requested documents to support certain charges and failed to receive those documents.” Finally, the SEC claims he did not keep adequate books and records during this time and failed to implement compliance policies.
Anderson agreed to supply current and potential clients with a copy of the SEC order and to post a copy on his website. Anderson is not allowed to act in a supervisory or compliance capacity or to charge advisory fees for three years, and he will pay a disgorgement and prejudgment interest of $405,381 and a $100,000 penalty. Anderson agreed to the SEC’s order without admitting or denying the findings.