SEC Charges California Advisory Firm AssetMark for Failing to Disclose Multiple Financial Conflicts

The Securities and Exchange Commission today announced that Concord, California-based registered investment adviser AssetMark Inc. has agreed to pay more than $18 million to settle charges related to undisclosed conflicts of interest involving a cash sweep program operated by its affiliated custodian and its receipt of millions of dollars in revenue sharing payments from third-party custodians.

According to the SEC’s order, from at least September 2016 to January 2021, AssetMark failed to provide full and fair disclosure of conflicts of interest arising from its affiliate’s cash sweep program, which transferred, or “swept,” clients’ uninvested cash into interest-earning bank accounts. AssetMark did not advise clients that it helped set the fee that its affiliate custodian received for operating the cash sweep program. The fee reduced amounts of interest paid to those clients. Additionally, the order finds that, from at least January 2016 through August 2019, AssetMark received custodial support payments from some third-party custodians based on assets held in certain no-transaction-fee mutual funds, but it failed to disclose to clients that, in some cases, there were lower-fee share classes with lower expense ratios available to clients which, if used by clients, would not have resulted in payments to AssetMark.

“Investment advisers 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. “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’s order finds that AssetMark violated the antifraud and compliance provisions of the Investment Advisers Act. Without admitting or denying the SEC’s findings, AssetMark consented to a cease-and-desist order requiring it to be censured, comply with certain undertakings, and pay a civil penalty of $9.5 million and disgorgement and prejudgment interest of more than $8.5 million, all of which is to be distributed to harmed investors.

The SEC's investigation was conducted by Rahul Kolhatkar, Heather Marlow, and John Farinacci under the supervision of Jeremy Pendrey, Mr. Dean, and Corey Schuster of the Division of Enforcement’s Asset Management Unit, with assistance from staff from the San Francisco Regional Office’s Division of Examinations, including Jim Marchi, Ricky Flanders, Michael Linvill, and Brad Gaedje.


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