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SEC Fines WFG Advisors for Overcharging REIT and BDC Clients

WFG Advisors, an affiliate of Williams Finance Group, was fined $100,000 by the Securities and Exchange Commission for overcharging clients invested in real estate investment trusts and business development companies. The SEC also said that the registered investment advisor had inadequate policies and procedures to prevent and detect such overcharges.

WFG Advisors told its clients participating in a wrap account program that they would be charged a commission in connection with the purchase of interests in certain alternative investment products, but would not be charged an advisory fee. However, from at least January 2011 through August 2013, the firm improperly charged its clients both fees, in some instances.

The company’s billing errors resulted in the firm overcharging 35 client accounts a total of $34,640.63 in advisory fees. According to the SEC, these overcharges, and WFG Advisors’ failure to detect them, occurred because the firm lacked policies and procedures reasonably designed to ensure that billing was accurate and that any errors were promptly detected.

The firm also falsely stated in forms and brochures filed with the SEC that clients participating in its wrap account program would not be charged commissions for transactions in their accounts.

WFG Advisors’ compliance department was responsible for account billing reconciliation, but did not have sufficient staff to address day-to-day compliance or account monitoring needs. The firm also did not have the technological capability to prevent or detect the overcharges, according to the SEC. Instead, their staff would randomly sample accounts, but this manually-conducted process failed.

The SEC said that WFG Advisors was aware of the risk that its policies and procedures were inadequate to prevent and detect overcharges. The risk was identified in November 2011 by a compliance consultant hired by the firm. In a second assessment conducted in February 2013, the same compliance consultant identified the same risks and again noted the need for follow-up work to be performed in the area of advisory fee computation and testing.

After the SEC staff brought to the fee overcharges to their attention, WFG Advisors identified the client accounts that were overcharged and refunded the money.

The SEC said that the firm was cooperative and took corrective actions by hiring an unaffiliated compliance consultant to review its policies and procedures related to fee filling, principal transactions, and disclosure to clients.

WFG Advisors has nearly $1.5 billion in regulatory assets under management held primarily in separately managed accounts of 9,918 clients.

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