(Article from Registered Funds Regulatory Update, April 2026)
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On January 20, 2026, the SEC settled charges against two affiliated registered investment advisers for, among other things, (i) including prohibited liability disclaimer and omitting assignment provisions in their advisory agreements, and (ii) failing to obtain an independent public accountant’s verification of client funds and securities.
According to the Order, from at least May 2019 through December 2024, the investment advisers entered into investment advisory agreements with clients that contained hedge clauses purporting to “broadly limit” the investment advisers’ liability to cases of willful misconduct or gross negligence, thereby misleading clients into believing that they could not, or were otherwise unable to pursue, other non-waivable causes of action against the advisers. The advisory agreements also failed to provide that the agreements could not be assigned by the advisers without client consent and instead affirmatively permitted such assignments without client consent in violation of the Advisers Act. Although the advisers subsequently revised the advisory agreement twice, once in 2020 without addressing the assignment provision, and again in 2024 following an SEC examination, the SEC noted that the 2024 revisions failed to cure the violation because the agreement “continued to fail to provide, in substance, that the adviser could not assign the agreement without the client’s consent.” The Order also alleged that the investment advisers’ compliance manuals contained written policies and procedures concerning liability disclaimers and assignment but the investment advisers failed to implement such policies and procedures.
Finally, the Order alleged that the investment advisers maintained custody of client assets by virtue of language in the agreements that authorized the advisers to “withdraw or direct the disbursements of” client assets maintained with a custodian upon the advisers’ instructions (without client approval or confirmation), but failed to comply with the requirements of the custody rule, including, specifically, by failing to obtain an annual examination by a public accountant for calendar years 2019 through 2024, as required by the Advisers Act.
Without admitting or denying the SEC’s findings, the investment advisers agreed (i) to cease-and-desist orders; (ii) censures; and (iii) civil monetary penalties totaling $150,000.
In the Matter of FamilyWealth Advisers, LLC, et. al., Release No. 6941 (Jan. 20, 2026), available at: https://www.sec.gov/files/litigation/admin/2026/ia-6941.pdf.