The SEC’s October 30, 2026 settlement with a wealth management adviser is a reminder that established adviser-enforcement theories remain in play under Chair Atkins. The case offers three practical takeaways: negligence is still enough to bring a case, the retail-client context matters, and exam remediation requires follow-through.
According to the SEC’s order, Snowden Capital Advisors (“SCA”) failed to fully disclose conflicts involving its affiliated broker-dealer’s margin-interest markups and revenue sharing on cash sweep money market funds. Some advisory clients also had brokerage margin accounts, allowing them to borrow against account assets to buy securities. The affiliate added a markup to the clearing firm’s interest rate and kept the difference, creating an incentive for SCA to recommend margin borrowing. The SEC also found that SCA’s retail advisory agreements contained misleading liability limitations, or “hedge clauses.”.
Negligence is still enough
The SEC did not use an intentional-fraud theory: it relied on Section 206(2) of the Advisers Act, which permits liability based on negligence. And the conflicts theory is familiar: failures to adequately disclose revenue sharing and cash sweeps were enforcement concerns years before the current Commission.
The hedge-clause theory is consistent with Gensler-era cases brought in 2022 and 2024. The current Commission remains willing to pursue familiar fiduciary-duty theories.
The retail-client context matters
The SEC’s concern with “hedge clauses” is that the language, read as a whole, could discourage retail clients from exercising non-waivable rights. SCA’s agreements broadly limited SCA’s liability unless gross negligence, willful malfeasance, or a violation of law was found. SCA already had a “savings” provision in its agreements: “Nothing in this Agreement waives or limits any rights that Client has under applicable federal or state securities laws.” But as the Commission’s 2019 interpretation explains, a liability limitation can still mislead retail clients about their non-waivable rights even when accompanied by such a disclaimer.
As we discussed in 2022, prior SEC orders emphasized that it may be difficult for retail clients to comprehend the “non-waiver disclosure” and noted a lack of procedures to assess their legal sophistication or explain the clause. In the SEC’s view, a savings clause does not cure misleading liability limitations in a retail advisory agreement. But private fund advisers should keep the retail/institutional distinction in mind: the Commission treats institutional-client provisions as a facts-and-circumstances question. The SCA settlement does not establish a blanket ban on exculpation provisions across all advisory relationships.
A new policy is not a complete fix
The SEC examination history is worth a close look: after exam staff raised the hedge-clause issue, SCA adopted a policy in June 2023 prohibiting misleading provisions, but allegedly left its client agreements unchanged. That failure supported a separate compliance-rule finding under Rule 206(4)-7. SCA settled without admitting the findings, agreeing to pay approximately $265,000 in disgorgement and prejudgment interest, and a $100,000 civil penalty.
That lack of follow-through likely made the hedge-clause issue more attractive for enforcement. Promptly amending the agreements during the exam might have kept the issue in the examination process and avoided an enforcement referral. Advisers should implement and document the correction: updating the compliance manual alone does not fix the underlying problem.
Recent Comments