Waddell & Reed Ordered to Pay $776K Over Wrap Fee Program 'Misconduct'

“LPL fully cooperated with this investigation, which was a legacy Waddell & Reed matter,” LPL said in a statement provided to ThinkAdvisor on Tuesday. “The investment program at issue was discontinued in July 2021, after LPL acquired Waddell & Reed,” LPL added.

As stated in the SEC’s order, reverse churning typically refers to a practice where a client is charged a wrap fee that covers all advisory services and trading costs although the client trades infrequently.

The order found that Waddell’s compliance policies and procedures required it to conduct quarterly reviews to monitor whether the wrap fee program remained suitable for clients or whether conversion of any wrap fee accounts to brokerage accounts was needed.

The order also found that Waddell & Reed’s monitoring flagged hundreds of wrap fee accounts; Waddell didn’t conduct adequate follow-up concerning those accounts; and the flagged accounts weren’t appropriately converted to brokerage accounts, as per Waddell’s policies and procedures.

In particular, from at least Jan. 1, 2015, to July 31, 2021, Waddell & Reed’s monitoring flagged 737 MAPLatitude accounts that should have been converted to brokerage accounts under its policies. But Waddell didn’t conduct adequate follow-up, including conversion of those MAPLatitude accounts, the SEC alleged.