AssetMark to Pay $18.3M Over Cash Sweep Issues

What You Need to Know

AssetMark failed to adequately disclose conflicts of interest involving a cash sweep program operated by an affiliated custodian.
It also failed to disclose its receipt of payments from certain other custodians.
The failures took place from at least September 2016 to January 2021, the SEC says.

The Securities and Exchange Commission said Tuesday that it had reached a settlement with AssetMark Inc. over the firm’s failure to adequately disclose conflicts of interest involving a cash sweep program operated by an affiliated custodian and its receipt of payments from some other custodians.

As a result of these issues, AssetMark will pay $6.8 million of disgorgement, $2 million of prejudgment interest, and a $9.5 billion civil penalty.

AssetMark’s operations include a turnkey asset management platform (or TAMP) that lets clients pick “one of several custodians to hold their assets and complete trades, among other services,” the SEC order states. One custodian is AssetMark Trust Company, which is affiliated with AssetMark and its parent company AssetMark Financial Holdings.

Based in Concord, California, AssetMark’s total platform assets were $102.2 billion on Aug. 31, including both assets under management and assets under advisement. AssetMark Trust Company’s client cash was $2.83 billion.

Multiple Failures

From at least September 2016 to January 2021, AssetMark “failed to provide full and fair disclosure of conflicts of interest arising from ATC’s cash sweep program, which transferred, or ‘swept,’ clients’ uninvested cash into interest-earning bank accounts,” the order states.

Specifically, AssetMark failed to fully disclose “conflicts arising from the fact that AssetMark and ATC were involved in setting the fee that ATC received for operating the cash sweep program,” the SEC said.

AssetMark requires clients using its platform to maintain a cash allocation to cover fees and other expenses, typically targeted at 2%.

For clients who selected ATC as a custodian, “ATC generally enrolled clients in its FDIC-Insured Cash Deposit Program … where customer cash was held in FDIC-insured interest bearing accounts at various banks,” the order said.