Investment adviser AssetMark Inc. has settled charges with the Securities and Exchange Commission over claims that it failed to sufficiently disclose conflicts of interest involving a cash sweep program operated by its affiliated custodian.
From at least September 2016 to January 2021, AssetMark did not provide full and fair disclosure of conflicts of interest related to its affiliate's cash sweep program, which transferred, or "swept," clients' uninvested cash into interest-earning bank accounts, according to a Sept. 26 SEC order. AssetMark did not tell clients that it helped set the fee that its affiliate custodian — AssetMark Trust Company — received for operating the cash sweep program, the SEC said.
The SEC also found that AssetMark, from at least January 2016 through August 2019, 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, the SEC said in an accompanying news release.
AssetMark did not admit to or deny the SEC's finding but agreed to a cease and desist order. It also consented to 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 said.
"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's enforcement division's asset management unit, in the news release "Here, AssetMark failed to disclose multiple financial conflicts of interest where AssetMark and its affiliated custodian reaped significant financial benefit from decisions it made."
An AssetMark spokesperson could not immediately be reached for comment.