Can an investment adviser really say that they don’t have any conflicts of interest? You certainly can’t say that the firm “provides conflict-free advice” on the website when your Form ADV discloses conflicts of interest.
The SEC released orders against nine investment advisers for violations of the Marketing Rule, claiming the firms made untrue claims, unsubstantiated claims, or made statement that lacked required disclosures.
One of these, Droms Strauss, clearly had a disconnect between compliance and marketing.
Compliance put this statement in the firm’s ADV Part2:
The payment of commissions to DSRM may result in a potential conflict of interest. In order to mitigate this conflict DSRM fully discloses such commission arrangements to Droms Strauss clients before the client purchases any such products. Further, all commissions received by Droms Strauss will be contributed to a non-profit charitable organization selected by the client who purchased the commissionable product from a list of charitable organizations selected by Droms Strauss. Droms Strauss’ policy is always to act in the best interest of its clients. Commissions received by DSRM do not offset advisory fees paid to Droms Strauss. Clients are not contractually obligated to use the services of DSRM.
Marketing published an advertisement on the firm’s public-facing website containing the material statement of fact that one of its investment adviser representatives “provides clients with conflict-free advice” without providing any context for this claim.
Interestingly, the SEC order does not take the position that the statement is false. Not (a)(1) “untrue statement of material fact”. But an (a)(2) violation that the firm made a material statement of fact that the adviser does not have a reasonable basis for believing it will be able to substantiate upon demand by the SEC.
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