Is Your Adviser Profiting From Your Margin Loan or Your Cash? The Securities and Exchange Commission ("SEC") Snowden Lane Order and Undisclosed Conflicts
Two of the least-watched parts of an advisory account are the interest you pay when you borrow on margin and the interest you earn, or do not earn, on idle cash. On October 30, 2026, the Securities and Exchange Commission ("SEC") found that a New York City registered investment adviser ("RIA"), Snowden Capital Advisors LLC, which does business as Snowden Lane Partners, failed to disclose that its affiliated broker-dealer was profiting from both. If you think your adviser had an undisclosed margin interest markup or cash sweep conflict, call (914) 304-4051 for a free consultation.
What the SEC found
The SEC's settled order (Advisers Act Release No. 7031) describes a New York City firm that reported about $8.9 billion in regulatory assets under management, including about $8.6 billion for retail clients. Its affiliated broker-dealer, Snowden Account Services LLC, is majority-owned by the same entity and shares executives, employees, an office and a telephone number. Snowden settled without admitting or denying the findings.
Margin interest markups
A margin loan lets you borrow from a broker-dealer against the securities in your account, and you pay interest on the balance. According to the order, from February 1, 2018 through March 31, 2023:
The clearing firm charged margin interest to Snowden's affiliated broker-dealer at a base rate.
The affiliate marked up the rate charged on advisory clients' margin balances and kept the extra interest.
That gave the adviser, which shares ownership and management with the affiliate, an incentive to recommend that clients borrow on margin. Some of the adviser's financial advisors were also registered with the affiliate.
The adviser made no disclosure of the markup or the conflict.
Cash sweep payments
Many accounts automatically "sweep" uninvested cash into a money market fund or bank deposit program. According to the order, from February 1, 2018 to June 30, 2020, the clearing firm paid the affiliate "distribution assistance" based on advisory clients' balances in certain sweep money market funds; higher balances meant larger payments. Other sweep funds paid nothing. Snowden's advisory clients' sweep cash went only into the funds that paid. The SEC found Snowden did not provide full and fair disclosure of this conflict.
A misleading hedge clause
A "hedge clause" is contract language that tries to limit an adviser's liability. From at least July 2019, Snowden's agreements for its discretionary and non-discretionary wealth advisory programs said the adviser would not be liable for "any error of judgment or mistake of law or for any loss arising out of any investment," except for gross negligence, willful malfeasance or violation of law.
The SEC has said there are "few (if any) circumstances" in which such a clause in a retail agreement is consistent with the antifraud provisions, even when the agreement says the client keeps non-waivable rights. The SEC found that Snowden's clause, read as a whole, "may mislead" clients into not exercising those rights. After an SEC examination raised the issue, Snowden adopted a policy barring such clauses in June 2023 but did not revise its agreements.
The sanctions
The SEC found Snowden willfully violated Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7. Snowden was censured, ordered to cease and desist, and ordered to pay:
Disgorgement of $226,316.99;
Prejudgment interest of $38,273.31; and
A civil penalty of $100,000.
The total, $364,590.30, goes into a Fair Fund. The order directs Snowden to pay each affected client the extra margin interest and distribution assistance tied to that client's account, plus reasonable interest, under a calculation SEC staff must approve, subject to a de minimis threshold. The SEC also considered remedial steps Snowden took.
Why these conflicts matter to you
An RIA owes you a fiduciary duty. That includes full and fair disclosure of conflicts so you can give informed consent or say no.
The direct cost
A margin markup means you paid more than the base rate, and steering cash only into paying funds raises the question of whether a better option existed. The Fair Fund targets these amounts.
The incentive
The larger risk is what the incentive may have encouraged. The order does not say how much margin any client used, and it does not find that particular margin recommendations were improper. But when an adviser's affiliate earns more as your margin balance grows, ask whether borrowing was ever in your best interest. Heavy margin can magnify losses and lead to forced selling in a downturn. If you were told to borrow against your portfolio and you suffered losses, the undisclosed conflict may be relevant evidence. If key facts were left out, you may also have an omission or misrepresentation claim.
The hedge clause
A clause suggesting you cannot hold your adviser responsible for ordinary negligence can discourage people from bringing valid claims. It should not. Federal securities laws contain anti-waiver provisions, which I discuss in my post on the anti-waiver provision.
Questions to ask about your own account
Do you have a margin balance, and who recommended it?
What rate are you paying, and does your adviser's affiliate share in it?
Where does your uninvested cash go, and what does it earn?
Does anyone at the firm earn more based on your cash or margin balances?
Does your advisory agreement contain a hedge clause?
Gather your statements, advisory agreement and Form ADV brochure. The same questions apply to 401(k) and IRA rollover money; see poor retirement advice.
A Fair Fund is not your only option
A Fair Fund returns the markup and payments the SEC identified, not losses from borrowing or investment decisions. The order also includes a penalty offset clause: in any "Related Investor Action," a private damages action based on substantially the same facts, Snowden agreed not to seek to reduce a damages award by the $100,000 penalty. Claims against an RIA are often heard in the arbitration forum named in the advisory agreement.
How I can help
I represent investors in New York City and nationwide in arbitration against RIAs, in Financial Industry Regulatory Authority ("FINRA") arbitration against brokerage firms and in court. I served as in-house counsel at one of the largest brokerage firms and worked at one of the largest defense law firms in the world. The consultation is free, and my firm is paid only if you recover. Contact me or call (914) 304-4051.
Frequently asked questions
What is a margin interest markup?
It is extra interest added on top of the base rate charged by a clearing firm, kept by the broker-dealer. The SEC found Snowden's affiliate charged one without disclosure to advisory clients.
What is a cash sweep conflict?
It arises when a firm or its affiliate earns money based on where your uninvested cash is placed, creating an incentive to favor options that pay the firm.
Will I get money from the Fair Fund?
If you were an affected Snowden advisory client during the relevant periods, you may receive a distribution under the SEC-approved calculation, subject to a de minimis threshold.
Can I bring a claim if I had margin losses?
Possibly. It depends on what you were told, whether the margin strategy was in your best interest and the facts of your account.
Attorney Advertising. This post is for general information only and is not legal advice. Reading it does not create an attorney-client relationship. Prior results do not guarantee a similar outcome. The SEC's findings were made in a settlement without admission or denial. Daren A. Luma, PLLC, 75 South Broadway, Suite 400, White Plains, NY 10601, (914) 304-4051.
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