AssetMark, a leading provider of technology and asset management services, has reached an agreement to pay over $18 million to settle allegations put forth by the Securities and Exchange Commission (SEC). The SEC accused AssetMark of failing to disclose conflicts of interest related to their cash sweep program and revenue-sharing payments.
No Admission or Denial - In agreeing to the settlement, AssetMark has neither admitted nor denied the SEC's findings. When reached for comment, a company spokesperson declined to provide any further information.
Clash of Interests - The Asset Management Unit of the SEC's Enforcement Division highlighted the fundamental duty investment advisors have to disclose any conflicts between their own financial interests and those of their clients. Andrew Dean, co-chief of the Asset Management Unit, stated that AssetMark had failed to disclose multiple financial conflicts of interest. These conflicts allowed AssetMark and its affiliated custodian to profit significantly from their decision-making.
A Leading Turnkey Asset Management Program - AssetMark operates one of the largest turnkey asset management programs (TAMPs) for independent financial advisors. These advisors rely on the company's comprehensive range of services, including investment management and technology solutions.
Cash Allocation Requirement - According to the SEC's order, AssetMark mandates that every portfolio strategy on its platform must include an allocation to cash. This cash allocation is meant to cover various fees and expenses that may arise. It's important to note that for the majority of accounts, the target cash allocation is set at 2%.
AssetMark's settlement brings attention to the critical role of transparency and disclosure in the investment industry. By resolving these conflicts of interest, the company can maintain trust with its clients and work towards a more transparent future.
AssetMark's Failure to Disclose Conflicts of Interest
SEC Reveals Key Findings
AssetMark, a financial company, has been found to have failed in providing adequate disclosure about conflicts of interest between 2016 and 2021, according to the Securities and Exchange Commission (SEC). This failure primarily relates to its affiliated custodian's cash sweep program, which moved clients' uninvested cash into interest-earning bank accounts. The SEC states that AssetMark did not inform clients of its role in setting the fee charged by the custodian for operating the cash sweep program. As a result, the interest paid to clients was reduced, with the fee accounting for around 85% of the total payments from the underlying banks.
The SEC further highlights that custodians made support payments to AssetMark based on assets held in no-transaction-fee (NTF) mutual funds. While these funds do not have transaction fees, they generally come with higher expense ratios compared to other non-NTF share classes of the same fund. Between 2016 and 2019, AssetMark failed to disclose to clients the availability of lower-fee share classes with lower expense ratios. If clients had opted for these lower-cost options, AssetMark would not have received the custodial support payments.
Following these findings, AssetMark took action in January 2021 to address the situation. The company renegotiated its agreements with custodians, resulting in the elimination of support payment arrangements, as confirmed by the SEC.
It is worth noting that AssetMark experienced a leadership transition around the time of this regulatory order. Former CEO Natalie Wolfsen left the company to assume the role of Chief Executive at Orion Advisor Solutions. Having steered AssetMark for the past two years and overseeing significant growth, Wolfsen was succeeded by Michael Kim, previously serving as President since March 2021.