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Regulatory & Internal Investigations

Advisory Account Reviews

Fee Calculation

The Regulatory & Internal Investigations team has assisted firms in reviewing for inaccuracies in advisory fees charged. This includes a review for calculation accuracy to the client agreement, comparing the fees charged in a given period to the expected fees, after matching the calculation basis and other factors to align with the firm’s practices. In many instances, Bates specifically reviewed for accuracy to the tiered fee schedule in place, after accounting for householding where applicable. The Bates review was able to quickly identify discrepancies so they could be addressed, particularly where fees were double billed or where refunds of unearned fees were not made at account termination inadvertently. Comprehensive Bates data was also used to streamline fee billing practices, and as a reference to help the firm better align is fee practices for reduced complexity across client agreements.


Bates has assisted clients in reviewing account activity for potential underutilization. Bates analyzes the firm’s trading activity to create trade counts by period (monthly/quarterly to match the advisory fee calculation basis) to check against the firm specified compliance windows. The length, frequency, and periodicity of the applicable trading compliance window in place at the firm during the time period at issue is used for this quantitative review. For example, a three-month window, applied four times a year (not rolling), during which an account cannot be out of compliance in any two adjacent windows. The minimum acceptable amount of trading activity within each compliance window is also tailored to match the firm’s standards.

After completing the trading activity review and quantifying compliance within each period based on the firm’s specifications, Bates then calculates remediation for accounts identified as out of compliance for an unacceptable amount of time according to the compliance window criteria. The fee payment data merged into the analysis environment with the trade blotter data, is also be used to conduct more granular reviews; for instance, identifying accounts meeting the trading minimum within the compliance window via sales with proceeds that almost exactly match the fee amount for that period (i.e., the trading was needed to cover the withdrawal of fees).

Additional reviews for account specific explanatory factors, such as client instructions, meeting notes, investment strategy, etc. are then conducted in order to remove any accounts which had contextualizing information explaining the trading activity level.

FA Book of Business Reviews

Bates has assisted in the investigation of registered representatives related to that individual’s book of business, focusing on product specific activity (A-share activity, annuities, preferreds, non-traded REITs, etc.), as well as turnover, commissions as a percentage of AUM, and other metrics.  The Bates team provided a thorough review for the activity in question throughout the individual’s book of business, identifying problematic trades and assessing potential remediation for impacted clients.  Call logs, surveillance alerts, and CRM notes were also reviewed, in addition to the quantitative factors, to form a complete picture of the activity.  Various alternatives were presented to key stakeholders as to remediation for different aspects of client harm, after which the Bates team worked with in-house personnel to affect repayment, and outside counsel on the required regulatory reporting after the individual was terminated.  Bates provided further assistance in follow on litigation after the termination and regulatory inquiry were made public, analyzing various claims (such as unauthorized trading) brought by claimants and providing detailed profit & loss evaluations for accounts and specific trades at issue.

Trading Away/Step Out Trading

Bates has assisted clients in evaluating trading costs incurred during various historical periods within their wrap fee programs, where trading cost disclosures were alleged to be insufficient in regard to step out trading that occurred. Bates was asked to assist in determining which managers had incurred trading costs by trading away from the client, and the extent to which those costs had been disclosed. The wrap fee charged in association with that trading activity was also evaluated and calculated where necessary. In coordination with inside and outside counsel, Bates participated in discussions with the regulator that ultimately defined an acceptable threshold for the occurrence of step out trading, as well as a rolling window in which to evaluate whether the percentage of step out trading met that threshold. These thresholds assisted in reducing the population at issue and allowed the client to frame the issue more effectively with the regulator, along with additional analysis completed by Bates into those managers that; disclosed costs, did not disclose costs, or disclosed zero cost. Demonstratives for use with the regulator were provided detailing the number of trades and accounts that had incurred additional trading costs within different time horizons, and across both equity and fixed income trading, and with and without disclosure. Step out costs incurred by account were also calculated, and assistance was provided by Bates to the client to improve the disclosures made by managers to the client in regards to step out trading and step out trading costs.

Case Examples

Contact Bates Group

Bates Group is with you every step of the way. Contact us today for more information on how our End-to-End Solutions can help your firm.

Contact Bates Group