Registered investment advisor Comprehensive Capital Management (CCM) of Rockaway, N.J., will pay more than $375,000 to settle SEC claims that it misrepresented fee-related information and failed to disclose conflicts of interest, among other failures, the agency said yesterday.
The brochure errors resulted in CCM improperly receiving more than $66,000 in unearned fees, the filing said, adding that the firm’s advisory agreement also contained improper language that could lead clients to believe they had waived a non-waivable right under both state and federal law to hold their advisor accountable for errors. CCM also did not maintain accurate records of its discretionary accounts (which account for 87% of its business, according to the firm’s latest ADV), and failed to adopt and implement required compliance policies and procedures, the SEC said.
In addition to the civil penalty and disgorgement of the unearned fees, the settlement ordered that the firm hire an independent compliance consultant within 30 days to conduct compliance reviews, report its findings and make recommendations for changes and improvements to CCM’s policies and procedures, and that CMM adopt all such recommendations.
"We're very happy to finally have settled this with the SEC to the benefit of all parties and to put the matter behind us," Timothy Smith, CCM's president and CEO, said in an interview.
CCM is a national network of about 20 investment advisor representatives, with about $63 million in assets under management, according to the SEC filing. The reps conduct business under their own names and are also registered reps of CCM’s affiliated broker-dealer.
According to the SEC, from January 2017 to May 2019, the firm’s ADV Part 2A-related brochure stated that if its affiliated broker charged commissions on the sale of variable annuity products held in clients’ IRA advisory accounts, then CCM would offset its own advisory fees against the commissions. However, during this period CCM’s clients did not receive the offset.
“Specifically, CCM clients who purchased variable annuity products in their retirement accounts paid commissions to its affiliated broker, at origination and on an ongoing basis,” the filing stated. “These clients also paid advisory fees to CCM based on the amount of assets under management in the advisory account, which included the variable annuity.”
In May 2019, the firm amended its brochure to remove that error, but in doing so inserted a different error concerning conflicts of interest, the filing said. The misleading language stated that the firm’s investment advisor reps would not receive commissions from the sale of products into advisory accounts, when in fact the reps did receive commissions as registered reps of the affiliated broker, the filing said.
In March 2021, CMM amended its brochure again to fix the language, but between 2017 and 2021 the firm improperly charged 11 clients a total of $66,635, the SEC said.
The SEC also stated staff from the SEC’s Division of Examinations observed in 2018 that CCM’s advisory agreements also had faulty language with regard to limiting the advisor’s liability, which is a violation of the Advisers Act. And finally, CCM failed to keep true, accurate and current records of client accounts where the firm had discretionary power over investments, the SEC said.