AssetMark Fined $18M by SEC for Conflicts-of-Interest Violations

AssetMark, a so-called turnkey asset-management platform, or TAMP, has agreed to pay more than $18 million to settle allegations of multiple financial conflicts of interest. The charges stem from a cash sweep program operated by its affiliated custodian, and the receipt of millions of dollars in revenue-sharing payments from third-party custodians. 

According to the Securities and Exchange Commission, the Concord, California-based firm failed for nearly five years through January 2021 to provide “full and fair disclosure of conflicts of interest” related to cash sweep programs that moved clients’ uninvested cash into bank accounts affiliated with AssetMark. 

“AssetMark did not advise clients that it helped set the fee that its affiliate custodian received for operating the cash sweep program,” the SEC order reads in part. 

Reduced Interest Payments

That fee reduced the amount of interest paid to clients whose cash was automatically swept into affiliated accounts.  

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. Yet 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’s order finds that AssetMark violated the antifraud and compliance provisions of the Investment Advisers Act.  

AssetMark, a publicly traded company trading under the ticker AMK, didn't respond to a request for comment for this story. 

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 will be distributed to harmed investors.

Duty to Disclose 

“Investment advisors have a fundamental duty to disclose conflicts between their own financial interests and those of their clients,” Andrew Dean, co-chief of the SEC Enforcement Division’s Asset Management Unit, said in a prepared statement. 

“Here, AssetMark failed to disclose multiple financial conflicts of interest where AssetMark and its affiliated custodian reaped significant financial benefit from decisions it made,” he added. 

Securities attorney Adam Gana described the size of the settlement as “significant,” and said more needs to be done to reign in conflicts of interest in the wealth-management industry. 

“I find these conflicts-of-interest cases are happening more and more,” he said. “There’s not enough regulation associated with conflicts of interest and right now the RIA space is like the Wild West," Gana said.

Over the last 30 days, AssetMark's stock is down roughly 12% to about $25 per share.  

Contact Jeff Benjamin at [email protected] and find him on X: @BenjiWriter