Bungled Family Account Aggregation Can Cause Compliance Aggravation for RIAs | Foreside

As they attempt to save money on cell phone bills that are larger than their mortgage payment, many consumers purchase a family plan from their carrier. Similarly, family account aggregation, commonly known as householding, can help clients to save money on their investment advisory fees. Clients are harmed, however, if a Registered Investment Advisor (“RIA”) fails to apply tiered breakpoint discounts that reduce advisory fees as their household account balances increase to a specified level.

Householding of accounts can help clients to save money

Many RIAs offer advisory fee schedules that provide for a lower charge when household accounts are aggregated and reach a certain level. When an RIA agrees to household clients’ accounts, the firm must ensure that they correctly calculate their fees on those assets under management.

On March 4, 2022, the SEC brought an enforcement action against an RIA that marketed its services primarily to teachers. The RIA charged clients a fee based on the gross value of clients’ assets under management. Those fees were supposed to be reduced when clients’ household assets reached a specific breakpoint.

Among other violations, the SEC alleged that the RIA acted inconsistently when aggregating the value of all accounts held by family members living in the same household. This failure caused certain clients to pay a higher advisory fee than they should have.

The RIA’s fee schedule, which was disclosed in its Form ADV Part 2A and incorporated by reference in the firm’s advisory agreements, incentivized clients to deposit more assets to reach the next breakpoint. Once clients attained the next breakpoint, they were entitled to receive a lower fee rate.

To determine the gross value of the client’s assets under management and the appropriate advisory fee, the RIA’s…

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