Compliance Solutions for Investment Advisers

Undisclosed Compensation Arrangements

Such arrangements may include, among others, undisclosed solicitation arrangements. It is not uncommon to have a discussion with a client about whether they can pay a certain person for client referrals. Often they cannot because the person is not qualified to act as a solicitor (e.g., they are not appropriately registered nor do they fit within some exception). Inevitably, the question is asked whether they could pay this person a flat monthly fee (or some similar arrangement) with a “bonus” at the end of the year. The goal being to make it look like they are not paying the individual based on amount of assets raised or a percentage of the referred client’s advisory fees earned (e.g., how a solicitor is usually paid). ┬áMy answer, of course, is always no because (i) it violates the regulations and (2) the SEC is very good at uncovering solicitors payments that are disguised as something else. The SEC is well-aware of this practice and will not tolerate advisers engaging in such activity.

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