Robare Group Decision Highlights Importance of Form ADV Disclosures

"The SEC took the position — and the court agreed — that Robare did not provide full and fair conflicts disclosure until it described the Fidelity revenue sharing formula, rates and attendant conflicts of interest," said Stanley, whose Moraga, California-based firm also provides compliance services for advisors and financial planners.

Stanley adds that it didn't help Robare's case "that a decade had elapsed before what the SEC considered to be adequate disclosure of the Fidelity payments was incorporated into its ADV."

In September 2014, the SEC's enforcement division instituted administrative and cease-and-desist proceedings against TRG and its principals, Mark Robare and Jack Jones.

"The SEC alleged that they had failed for many years to disclose to their clients and to the Commission the compensation TRG received through its arrangement with Fidelity and the conflicts of interest arising from that compensation," the ruling states.

Specifically, the SEC alleged that Robare and TRG willfully violated Sections 206, while Jones aided, abetted and caused the violations. Following an evidentiary hearing, an administrative law judge dismissed the charges.

However, SEC Commissioners' issued a Nov. 7, 2016, opinion, In the Matter of The Robare Group, Ltd., et al., in which they disagreed, reversed the ALJ, and imposed a $150,000 penalty along with a cease-and-desist order, Stanley wrote previously in an article about the case for ThinkAdvisor.

Stanley's advice to advisors in light of the Robare case: "When crafting conflicts of interest disclosure, be sure to unequivocally identify the conflict, describe the conflict in sufficient detail, and explain how the firm addresses the conflict. Though use of the word 'may' and other equivocal language was not a focus of opinion, there is clearly an expectation that vague, generalized and scant references to conflicts will not be acceptable."