This publication is provided for educational and informational purposes only and is not intended to constitute legal advice. The information contained herein is generalized, does not apply to any particular facts or circumstances, and should not be relied upon without consulting qualified legal counsel. Receipt of this publication does not create an attorney-client relationship.
On July 31, 2026, the Securities and Exchange Commission ("SEC") issued an Order Instituting Administrative and Cease-and-Desist Proceedings against Papamarkou Wellner Asset Management, Inc. (the "Adviser"), a registered investment adviser serving high-net-worth retail clients. The SEC found that, from 2019 through January 2022, the Adviser calculated and charged advisory fees in a manner inconsistent with its client advisory agreements and Form ADV Part 2A disclosures. Specifically, the firm's disclosures required that certain compensation paid to an affiliated broker-dealer of the Adviser from third-party private fund managers be offset against client advisory fees, but those offsets were not always applied. The SEC concluded that these practices violated Section 206(2) of the Investment Advisers Act of 1940, focused on negligent conduct of the Adviser, and further found that the Adviser failed to implement compliance policies and procedures that accurately reflected its billing practices. Importantly, while the firm correctly implemented offsets in most other situations, the SEC still pursued action despite the oversight.
The Order serves as a reminder that adviser billing practices remain a key area of SEC examination and enforcement focus, including:
- Accurate fee disclosures/terms in advisory agreements and Form ADVs;
- Clear and consistently applied billing methodologies;
- Centralized billing processes and regular validations of those processes;
- Mitigating conflicts of interest associated with affiliate compensation arrangements through fee rebates, reductions, or waivers; and
- Accurate reporting of fees and expenses charged to clients.
These themes have been highlighted in various SEC resources and other enforcement actions over the last several years[1]:
- June 9, 2026: Risk Alert (SEC discusses conflicts of interest issues and gaps in associated billing implementation to mitigate such conflicts.)
- August 25, 2023: Administrative Proceeding No. 3-21580 (SEC finds advisory fee reductions agreed upon with clients were not properly entered into firm billing systems and therefore not implemented for approximately 11,000 accounts resulting in overcharges to clients totaling more than $26.8 million.)
- January 11, 2022: Administrative Proceeding No. 3-20700 (SEC finds adviser failed to offset commissions received from an affiliated broker-dealer for the sale of variable annuity products sold to IRAs from the clients’ advisory fees despite disclosures by the adviser that it would do so.)
- November 10, 2021: Division of Examinations Observations: Investment Advisers’ Fee Calculations (SEC addresses various deficient billing practices it had observed and provides guidance surrounding policies and procedures to assist advisers with compliance in fee calculation and billing.)
- April 12, 2018: Risk Alert (SEC highlights compliance issues it had observed associated with billing practices and provides expectations in resolving such issues.)
Adviser billing practices are frequently among the first areas reviewed during an SEC examination. While billing errors often result from operational failures or oversight rather than intentional misconduct, such deficiencies are relatively easy for exam staff to identify and can quickly become the basis for deficiency findings or enforcement referrals. The resulting consequences may include disgorgement, civil penalties, interest, and public censure.
To pass your SEC examination regarding billing practices, consider these practical tips:
- Read Your Client Advisory Agreements. Advisory agreements often contain billing provisions that appear reasonable on paper but are difficult to implement operationally. Before adopting a fee structure, advisers should confirm that the terms can be administered consistently and accurately. Contractual obligations that cannot be operationalized can quickly become examination findings.
- Align Your ADV 2A, Client Advisory Agreements, and Marketing Materials. Consistency matters. It is not enough for your billing practices to match one disclosure document if they conflict with others. Changes to fee terms, methodologies, or compensation arrangements should be reflected across all client-facing documents, as appropriate.
- Identify Compensation Conflicts of Interest. Review compensation arrangements to ensure that the firm and its personnel are not incentivized to recommend one product or strategy over another. In many cases, advisers address these concerns through "fee leveling" arrangements, under which compensation remains substantially consistent regardless of the product selected. Advisers should be particularly mindful of conflicts involving retirement accounts.
- Provide Appropriate Disclosure Detail. Disclosing a fee rate alone may not be sufficient. Advisers should clearly describe how fees are calculated, the assets or values to which fees are applied, the timing of fee assessments, and any adjustments, offsets, or credits that may apply.
- Evaluate The Reasonableness of the Fee Charged. The fee charged to the client by you (or even fees charged by the adviser’s vendors, affiliates, or partners) cannot be unfettered. Advisory fees should be appropriate in light of the services, programs, and products provided. Advisers should periodically evaluate their fee arrangements, including fees charged by affiliates or service providers where relevant, and document the basis for those determinations.
- Document and Implement Changes in Fees. Fee changes should be properly documented and, where required, approved by clients. Advisers using tiered fee schedules should ensure that operational systems are designed to implement rate changes promptly and accurately.
- Build and Test Policies and Procedures. Billing controls should be documented, tested periodically, and updated as business practices evolve. Where deficiencies are identified, advisers should promptly remediate them and maintain records demonstrating the corrective actions taken.
Billing issues are often identified only after a regulatory examination begins. Periodic reviews of fee disclosures, billing methodologies, and operational controls can help advisers identify discrepancies before regulators do. If issues are identified, a fulsome, strategic, and documented remedial action is necessary. Bressler regularly assists advisers with billing reviews, compliance assessments, SEC examinations, and enforcement matters involving billing practices.
[1] The below contains a non-exclusive list of SEC guidance and administrative actions on the topic.