Snowden Lane Partners, a New York-based registered investment advisor with $15 billion in assets, has settled charges with the Securities and Exchange Commission that the firm breached its fiduciary duty to retail clients over more than five years. The firm did not admit the SEC’s findings, but agreed to pay more than $360,000 in disgorgement, interest and penalties.

The order states that from at least February 2018 through March 2023, Snowden Lane did not disclose to its advisory clients that its affiliated broker/dealer was marking up margin interest rates on client accounts and collecting those markups as compensation from its clearing firm. Some of the brokerage customers affected were also the firm’s advisory clients, meaning the RIA had an undisclosed financial incentive tied to its own clients’ margin balances. The SEC found that the firm never disclosed the actual or potential conflicts of interest this arrangement created.

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The order also addresses a second, overlapping period. From February 2018 through June 2020, regulators found that Snowden Capital failed to provide full and fair disclosure about a separate conflict: revenue its affiliated broker/dealer earned from its clearing firm based on advisory clients’ assets held in cash sweep money market funds.

Beyond the compensation disclosures, the SEC’s order also took issue with language embedded in Snowden Lane’s client agreements. Starting in July 2019, the firm used a hedge clause in its advisory agreements that purported to limit its liability to clients. The SEC found that the clause’s language was inconsistent with an investment advisor’s fiduciary duty because it risked misleading retail clients into believing they could not exercise certain legal rights that, in fact, cannot be waived.

Notably, the order states that Snowden Lane adopted internal written policies in June 2023 explicitly prohibiting the use of hedge clauses likely to mislead clients about the firm’s liability. Despite adopting that policy, the firm did not revise its existing client agreements to remove the problematic language.

“This matter stems from a routine SEC examination in 2022 and concerns the adequacy of certain disclosures, not a failure to disclose,” said a Snowden Lane spokesperson in a statement. “The SEC’s order acknowledges that clients received disclosures regarding the compensation arrangements at issue. Clients did not experience investment losses, and we updated the relevant disclosures and advisory agreement language following the initial examination. While we respectfully disagree with the SEC’s position, we chose to resolve the matter without admitting the SEC’s findings and are pleased to have it resolved.”

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As part of the settlement, the RIA also consented to a cease-and-desist order and a formal censure.