Adviser is Fined For Shortchanging Himself on Fees

Anyone in compliance and anyone running a fund knows that the Securities and Exchange Commission is laser-focused on fees being charged to investors. Marco Investment Management got it wrong and was subject to an order by the SEC. But, the firm actually short-changed itself.


Marco’s advisory agreements with its clients called for a fee to be paid based on the “market value of all gross assets.” Some of these clients also had margin accounts. Investment proceeds were supposed to be used to repay margin loans. However, Marco believed that some of his clients wanted the proceeds to be reinvested. Marco charged a fee on the proceeds in the accounts.

The margin accounts also caused some time delays in calculating the asset value since Marco deducted the value before the liquidation was complete. That meant Marco undercharged for fees.

Given these problems, it should not be a surprise that the SEC found that Marco was mis-stating its assets under management in its Form ADV filings.

The net result of the over-charging and under-charging was a net negative to Marco according to the firm’s letter to its investor.

Even though Marco did not profit from its mistakes, it still made a mistake in calculating fees. This case shoes that the SEC expects advisory firms to be exacting when charging fees to its clients


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