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Regulatory Sanctions

Investment Adviser Failed to Disclose Compensation Earned by Its Broker-Dealer

September 5, 2018

[Photo:  'Left Hand, Right Hand' by EndTimesWatcher / wordpress]


by Howard Haykin


First Western Advisors, a Utah-based registered investment adviser and broker-dealer, will pay $203K in disgorgement, pre-judgment interest and fines to settle SEC charges that it failed to inform advisory clients about the compensation from mutual fund investments that it received in its capacity as a broker-dealer.


FWA has been registered with the SEC Commission as an investment adviser and broker-dealer since 2000 and 1983, respectively. FWA provides advisory services through its Investment Adviser Reps (“IARs”), most of whom are also registered reps of FWA’s broker-dealer operations. As of March 2018, the firm reported assets under management of $284 million, all of which were associated with discretionary client accounts.


SEC FINDINGS.    From at least March 2012, to December 31, 2016 (the “Relevant Period”), FWA offered various asset management services to its advisory clients through an advisory program called Private Client Accounts. The PCA program enabled the IARs to invest client assets in various mutual funds.


However, during this time, FWA wrongly disclosed to its advisory clients that it did not receive compensation in any form from the sale of mutual funds. In fact, in its capacity as a broker-dealer, FWA received nearly $140,000 in 12b-1 fees.


During the Relevant Period, FWA’s IARs engaged in additional violative conduct by placing certain advisory clients into mutual fund share classes that charged 12b-1 fees when those clients were eligible to invest in lower-cost share classes of the same funds. In effecting those transactions, the IARs: (i) failed to disclose a conflict of interest (due to the additional compensation it received for those share class selection practices); and, (ii) they violated FWA’s obligation to seek best execution.


As a result of the conduct described above, FWA willfully violated Sections 206(2), 206(4), and 207 of the Advisers Act and Rule 206(4)-7 thereunder.