In re J.P. MORGAN SECURITIES

 
 UNITED STATES OF AMERICA 
 Before the 
 SECURITIES AND EXCHANGE COMMISSION 
 
SECURITIES EXCHANGE ACT OF 1934 
Release No. 101494 / October 31, 2024 
 
INVESTMENT ADVISERS ACT OF 1940 
Release No.    6759 / October 31, 2024 
 
ADMINISTRATIVE PROCEEDING 
File No. 3-22278 
 
In the Matter of 
 
J.P. MORGAN SECURITIES 
LLC  
 
Respondent. 
 
 
ORDER INSTITUTING ADMINISTRATIVE 
AND CEASE-AND-DESIST PROCEEDINGS, 
PURSUANT TO SECTION 15(b) OF THE 
SECURITIES EXCHANGE ACT OF 1934 
AND SECTIONS 203(e) AND 203(k) OF THE 
INVESTMENT ADVISERS ACT OF 1940, 
MAKING FINDINGS, AND IMPOSING 
REMEDIAL SANCTIONS AND A CEASE-
AND-DESIST ORDER 
   
 
I. 
 The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 
public interest that public administrative and cease-and-desist proceedings be, and hereby are, 
instituted pursuant to Section 15(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and 
Sections 203(e) and 203(k) of the Investment Advisers Act of 1940 (“Advisers Act”) against J.P. 
Morgan Securities LLC (“Respondent”). 
II. 
 In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
purpose of these proceedings and any other proceedings brought by or on behalf of the 
Commission, or to which the Commission is a party, and without admitting or denying the findings 
herein, except as to the Commission’s jurisdiction over Respondent and the subject matter of these 
proceedings, which are admitted, Respondent consents to the entry of this Order Instituting 
Administrative and Cease-and-Desist Proceedings, Pursuant to Section 15(b) of the Securities 
Exchange Act of 1934 and Sections 203(e) and 203(k) of the Investment Advisers Act of 1940, 
Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order (“Order”), as 
set forth below. 

 
 2 
III. 
 On the basis of this Order and Respondent’s Offer, the Commission finds
1
 that: 
Summary 
1. This matter arises from disclosure violations by J.P. Morgan Securities LLC (“JP 
Morgan Securities”), a dually registered investment adviser and broker-dealer, in connection with 
its advisory program known as the Portfolio Manager Program (“PM Program”).  Since at least July 
2017 until October 11, 2024 (the “Relevant Period”), JP Morgan Securities failed to fully and fairly 
disclose the financial incentive of itself and certain of its financial advisors
2
 to recommend the PM 
Program over advisory programs offered by JP Morgan Securities that use third-party managers.  JP 
Morgan Securities also failed to adopt and implement written compliance policies and procedures 
reasonably designed to prevent violations of the Advisers Act and the rules thereunder in 
connection with the disclosure of conflicts of interest presented by the fee structure of the advisory 
programs for itself and its financial advisors. 
Respondent 
2. JP Morgan Securities is a Delaware limited liability company with its principal 
place of business in New York, New York.  It has been dually registered with the Commission as a 
broker-dealer and investment adviser since December 13, 1985, and April 3, 1965, respectively.  In 
its Form ADV dated March 28, 2024, JP Morgan Securities reports that it has approximately $249.7 
billion in regulatory assets under management (“AUM”).  JP Morgan Securities is a wholly owned 
subsidiary of JPMorgan Chase & Co., a global financial services firm incorporated in Delaware and 
headquartered in New York, New York. 
JP Morgan Securities’ Discretionary Wrap Fee Programs 
3. Discretionary wrap fee programs are advisory programs in which clients pay JP 
Morgan Securities an asset-based fee for asset management, and JP Morgan Securities agrees not to 
charge clients any transaction-based fees for the purchase or sale of securities in client accounts.  
The term “discretionary” refers to the ability of portfolio managers to make buy and sell decisions 
on behalf of their clients without first proposing each trade to the client for approval.  JP Morgan 
Securities offers discretionary wrap fee programs including the PM Program, in which approved 
financial advisors serve as portfolio managers, and programs that offer investment strategies 
managed by third-party portfolio managers, such as the Strategic Investment Services Program 
                                                 
1
  The findings herein are made pursuant to Respondent’s Offer of Settlement and are not 
binding on any other person or entity in this or any other proceeding. 
2
  JP Morgan Securities used a number of terms to refer to its financial advisors during the 
Relevant Period; in 2017-2018 they were called Advisory Representatives, in 2019-2020 they 
were called Financial Advisors, and starting in 2021 they are called Wealth Advisors.  In 
addition to being investment advisory representatives, financial advisors are also registered 
representatives of the broker-dealer. 

 
 3 
(“STRATIS”), Unified Managed Account Program (“UMA”), and Investment Counseling Service 
Program (“ICS”) (together, “Third-Party Manager Programs” or “TPM Programs”).  The PM 
Program and TPM Programs described below are offered by JP Morgan Securities through its sales 
channel known as J.P. Morgan Advisors. 
4. The PM Program is a discretionary wrap fee program in which an approved JP 
Morgan Securities financial advisor constructs client portfolios based on a set of investment 
strategies that JP Morgan Securities has approved for each eligible financial advisor.  During the 
Relevant Period, there were approximately 190 financial advisors in the PM Program with 750 total 
strategies.  Most PM Program strategies are similar to strategies offered by other investment 
advisers available through the TPM Programs.  However, the PM Program strategies are different in 
that the PM Program financial advisor is also the portfolio manager for the investment strategy, 
clients have direct access to the person selecting individual securities, and can request portfolio 
modifications based on their individual circumstances (e.g., tax considerations).   
5. Since the end of 2016, AUM in the PM Program grew from approximately $10.5 
billion to more than $30 billion in 2022.     
6. The TPM Programs are advisory programs in which financial advisors identify and 
advise clients to invest in strategies managed by third-party advisory firms.  Similar to the PM 
Program, strategies run by the third-party advisory firms typically invest in equity, fixed income, or 
balanced strategies.  The client works with their JP Morgan Securities financial advisor to select 
TPM Program strategies that meet their investment goals.  Unlike the PM Program, clients do not 
have direct access to the TPM Program portfolio managers and have limited ability to request 
portfolio modifications.  
7. JP Morgan Securities financial advisors have the ability to recommend that clients 
invest in strategies offered in the TPM Programs, but only approved financial advisors are permitted 
to offer their own PM Program strategies.    
JP Morgan Securities’ Financial Incentive to Recommend the PM Program 
8. As described further below, the fee structures of the PM Program and TPM 
Programs and the minimum AUM requirement for PM Program financial advisors create an 
incentive for JP Morgan Securities and financial advisors to recommend the PM Program over the 
TPM Programs.   
9. For both the PM Program and TPM Programs JP Morgan Securities charges a wrap 
fee that is capped at 2% of client assets in the account, but the wrap fee is negotiable and financial 
advisors have discretion to lower the percentage fee charged, including at the request of clients.  In 
practice, most financial advisors charge a wrap fee of far less than the 2% maximum.   
10. In addition to the JP Morgan Securities wrap fee, clients in the TPM Programs pay a 
separate fee to the third-party manager (“TPM Fee”), which cannot be negotiated by financial 
advisors.  For STRATIS and UMA, JP Morgan Securities collects the TPM Fee and pays it to the 
third-party manager.  For ICS, because the program is dual-contract, the client separately pays a 

 
 4 
wrap fee to JP Morgan Securities and another fee to the third-party manager.  This additional fee is 
not applicable in the PM Program because JP Morgan Securities financial advisors manage the 
strategies. 
11. Clients typically pay a lower overall fee when using the PM Program as compared to 
the TPM Programs.  However, financial advisors approved for the PM Program typically charge a 
higher JP Morgan Securities wrap fee to PM Program accounts (where the FA provides additional 
portfolio management services) than those financial advisors charge to TPM Program accounts.   
12. Financial advisors are compensated in accordance with the fees they generate for JP 
Morgan Securities and based on a compensation grid, which dictates the percentage split of the fees 
between JP Morgan Securities and the financial advisor.  For example, during the Relevant Period, 
financial advisors generating at least $500,000 in fees for JP Morgan Securities received 40-50% of 
that amount.  The rest was retained by JP Morgan Securities. 
13. For the PM Program, JP Morgan Securities and its financial advisors keep 100% of 
the wrap fee paid by the client.  As a result, 100% of the fee is credited to the compensation grid for 
purposes of calculating the financial advisor’s compensation.  When clients are invested in the TPM 
Programs, the client pays both a wrap fee to JP Morgan Securities and a separate fee to the third-
party managers, typically resulting in a higher overall fee to the client.  JP Morgan Securities and its 
financial advisors keep 100% of the wrap fee for the TPM Programs, which is credited to the grid.  
However, the financial advisor does not receive any part of the TPM Fee.   
14. In part because clients do not pay a separate third-party fee when invested in PM 
Program strategies, JP Morgan Securities and its financial advisors are able to charge a higher wrap 
fee for the PM Program, while maintaining a lower overall fee for the client.  The opportunity to 
charge a higher wrap fee for PM Program strategies creates a financial incentive for JP Morgan 
Securities and its financial advisors to recommend the PM Program over the TPM Programs.  Prior 
to August 2021, there was no disclosure concerning this financial incentive for financial advisors, 
and prior to October 11, 2024, there was no disclosure regarding this financial incentive for JP 
Morgan Securities. 
15. PM Program financial advisors who do not maintain at least $20 million in AUM 
after two years within the PM Program generally lose their eligibility to participate in that program.  
This creates an additional incentive for approved financial advisors to recommend that clients put 
and keep their assets in the PM Program strategies rather than TPM Programs.  Neither the $20 
million minimum AUM, nor the fact that financial advisors could lose their ability to offer PM 
Program strategies if they fall below that amount, nor the resulting incentive to place client assets in 
the PM Program, was disclosed to clients until October 11, 2024. 

 
 5 
JP Morgan Securities Failed to Adequately Disclose its and its PM Program Financial 
Advisors’ Financial Incentives to Recommend the PM Program 
16. During the Relevant Period, JP Morgan Securities did not adequately disclose all 
material facts concerning the incentives to recommend the PM Program over the TPM Programs.  
The PM Program’s ADV brochure dated June 9, 2017, stated that: 
[JP Morgan Securities] typically pays a portion of the Wrap Fee and any Incentive 
Fee it receives from each client in the [PM Program] to the Advisory Representative 
for that client.  The exact portion of such fees . . . is most commonly within a range 
from 40% to 50%.  Because the amount received by an Advisory Representative as a 
result of a client’s participation in the [PM Program] may be more than the Advisory 
Representative would receive if the client participated in another J.P. Morgan 
Securities investment advisory program or paid separately for investment advice, 
brokerage and other services covered by the Wrap Fee, the Advisory Representative 
may have a financial incentive to recommend the [PM Program] over other 
programs or services. 
17. This PM Program disclosure did not provide full and fair disclosure as to the 
conflict created by the differences in the fee structure between the PM Program and TPM 
Programs, and specifically the opportunity to charge a higher wrap fee for PM Program strategies.  
Indeed, JP Morgan Securities used the same language in describing the TPM Programs in its ADV 
brochure for the TPM Programs, even though those programs typically provide JP Morgan 
Securities and its financial advisors with less compensation than the PM Program.
3
  
18. As a result, the PM Program brochure disclosure used until August 2021 did not 
disclose the conflicts of interest that PM Program financial advisors have when recommending that 
clients invest through the PM Program over the TPM Programs, particularly the fact that financial 
advisors most often negotiate a higher JP Morgan Securities fee when clients participate in the PM 
Program, which has no separate portfolio manager fee, instead of in TPM Programs where clients 
also pay a separate portfolio manager fee.  The disclosure was also unclear because in addition to 
                                                 
3
  The TPM Programs’ brochure disclosure stated that: 
 
A portion of [JP Morgan Securities’ component of the Fee] is generally paid to 
the J.P. Morgan Securities Advisory Representative servicing the client’s [TPM 
Program] accounts[(s)], who also may have recommended that the client 
participate in [the TPM Program].  Because the amount received by an Advisory 
Representative as a result of a client’s participation in [the TPM Program] may be 
more than the Advisory Representative would receive if the client participated in 
another J.P. Morgan Securities investment advisory program or paid separately 
for investment advice, brokerage and other services covered by the Fee, the 
Advisory Representative may have a financial incentive to recommend [the TPM 
Program] over other programs or services. 
 

 
 6 
comparing the PM Program to other wrap fee programs, it also compared non wrap-fee program 
services provided by JP Morgan Securities, making it difficult for a client to understand what 
exactly is being disclosed.  Until October 11, 2024, the disclosure also did not mention JP Morgan 
Securities’ conflict of interest, which is separate from the financial advisor’s conflict.  Until 
October 11, 2024, there was no disclosure regarding JP Morgan Securities’ financial incentive to 
recommend that clients invest through the PM Program over the TPM Programs. 
19. Furthermore, until October 11, 2024, the brochure made no disclosure regarding the 
incentive for financial advisors to put and keep client assets in PM Program strategies to help the 
financial advisor maintain the required minimum AUM in the PM Program.  JP Morgan Securities 
did not disclose that financial advisors approved for the PM Program were required to maintain a 
minimum PM Program AUM after two years, nor that financial advisors who do not maintain that 
minimum AUM in the PM Program could be removed from the program.  JP Morgan Securities 
described a number of other factors that could lead to a financial advisor being removed from the 
PM Program.   
JP Morgan Securities Failed to Implement Written Policies and Procedures Reasonably 
Designed to Prevent Violations of the Advisers Act and the Rules Thereunder 
20. During the Relevant Period, JP Morgan Securities failed to adopt and implement 
written policies and procedures reasonably designed to prevent violations of the Advisers Act and 
the rules thereunder in connection with the disclosure of conflicts of interest presented by the fee 
structure for its advisory programs or the compensation to its financial advisors.  Other than 
generalized statements that conflicts of interest should be disclosed, JP Morgan Securities’ policies 
and procedures did not contain any specific guidance regarding the disclosure of conflicts of 
interest.  
Violations 
21. As a result of the conduct described above, JP Morgan Securities willfully
4 
violated 
Section 206(2) of the Advisers Act, which prohibits an investment adviser, directly or indirectly, 
from engaging “in any transaction, practice, or course of business which operates as a fraud or 
deceit upon any client or prospective client.”  Scienter is not required to establish a violation of 
Section 206(2), which may rest on a finding of simple negligence.  SEC v. Steadman, 967 F.2d 
                                                 
4
  “Willfully,” for purposes of imposing relief under Section 15(b) of the Exchange Act and 
Section 203(e) of the Advisers Act, “‘means no more than that the person charged with the duty 
knows what he is doing.’”  Wonsover v. SEC, 205 F.3d 408, 414 (D.C. Cir. 2000) (quoting 
Hughes v. SEC, 174 F.2d 969, 977 (D.C. Cir. 1949)).  There is no requirement that the actor 
“also be aware that he is violating one of the Rules or Acts.”  Tager v. SEC, 344 F.2d 5, 8 (2d 
Cir. 1965).  The decision in The Robare Group, Ltd. v. SEC, which construed the term 
“willfully” for purposes of a differently structured statutory provision, does not alter that 
standard.  922 F.3d 468, 478-79 (D.C. Cir. 2019) (setting forth the showing required to establish 
that a person has “willfully omit[ted]” material information from a required disclosure in 
violation of Section 207 of the Advisers Act). 

 
 7 
636, 643 n.5 (D.C. Cir. 1992) (citing SEC v. Capital Gains Research Bureau, Inc., 375 U.S. 180, 
194-95 (1963)). 
22. As a result of the conduct described above, JP Morgan Securities willfully violated 
Section 206(4) of the Advisers Act and Rule 206(4)-7 thereunder, which requires investment 
advisers registered or required to be registered with the Commission to adopt and implement 
written policies and procedures reasonably designed to prevent violations of the Advisers Act and 
the rules thereunder. 
IV. 
 In view of the foregoing, the Commission deems it appropriate, and in the public interest, 
to impose the sanctions agreed to in Respondent’s Offer. 
 
 Accordingly, pursuant to Section 15(b) of the Exchange Act and Sections 203(e) and 
203(k) of the Advisers Act, it is hereby ORDERED that: 
 
 A. JP Morgan Securities cease and desist from committing or causing any violations 
and any future violations of Sections 206(2) and 206(4) of the Advisers Act and Rule 206(4)-7 
promulgated thereunder.  
 
B. JP Morgan Securities is censured. 
 
C. JP Morgan Securities shall, within 21 days of the entry of this Order, pay a civil 
monetary penalty in the amount of $45 million to the Securities and Exchange Commission for 
transfer to the general fund of the United States Treasury, subject to Exchange Act Section 
21F(g)(3).  If timely payment is not made, additional interest shall accrue pursuant to 31 U.S.C. 
§ 3717. 
 
Payment must be made in one of the following ways:   
 
(1) Respondent may transmit payment electronically to the Commission, which 
will provide detailed ACH transfer/Fedwire instructions upon request;  
 
(2) Respondent may make direct payment from a bank account via Pay.gov 
through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or  
 
(3) Respondent may pay by certified check, bank cashier’s check, or United 
States postal money order, made payable to the Securities and Exchange 
Commission and hand-delivered or mailed to:  
 
Enterprise Services Center 
Accounts Receivable Branch 
HQ Bldg., Room 181, AMZ-341 
6500 South MacArthur Boulevard 

 
 8 
Oklahoma City, OK 73169 
 
Payments by check or money order must be accompanied by a cover letter identifying JP 
Morgan Securities as a Respondent in these proceedings, and the file number of these proceedings; 
a copy of the cover letter and check or money order must be sent to Virginia Rosado Desilets, 
Assistant Director, Securities and Exchange Commission, Division of Enforcement, 100 F St., NE, 
Washington, DC 20549-5012. 
 
Amounts ordered to be paid as civil money penalties pursuant to this Order shall be treated 
as penalties paid to the government for all purposes, including all tax purposes.  To preserve the 
deterrent effect of the civil penalty, Respondent agrees that in any Related Investor Action, it shall 
not argue that it is entitled to, nor shall it benefit by, offset or reduction of any award of 
compensatory damages by the amount of any part of Respondent’s payment of a civil penalty in 
this action (“Penalty Offset”).  If the court in any Related Investor Action grants such a Penalty 
Offset, Respondent agrees that it shall, within 30 days after entry of a final order granting the 
Penalty Offset, notify the Commission’s counsel in this action and pay the amount of the Penalty 
Offset to the Securities and Exchange Commission.  Such a payment shall not be deemed an 
additional civil penalty and shall not be deemed to change the amount of the civil penalty imposed 
in this proceeding.  For purposes of this paragraph, a “Related Investor Action” means a private 
damages action brought against Respondent by or on behalf of one or more investors based on 
substantially the same facts as alleged in the Order instituted by the Commission in this 
proceeding. 
 
 By the Commission. 
 
 
 
Vanessa A. Countryman 
        Secretary 
 
 

UNITED STATES OF AMERICA 

 Before the 

 SECURITIES AND EXCHANGE COMMISSION 

 

SECURITIES EXCHANGE ACT OF 1934 

Release No. 101494 / October 31, 2024 

 

INVESTMENT ADVISERS ACT OF 1940 

Release No.    6759 / October 31, 2024 

 

ADMINISTRATIVE PROCEEDING 

File No. 3-22278 

 

In the Matter of 

 

J.P. MORGAN SECURITIES 

LLC  

 

Respondent. 

 

 

ORDER INSTITUTING ADMINISTRATIVE 

AND CEASE-AND-DESIST PROCEEDINGS, 

PURSUANT TO SECTION 15(b) OF THE 

SECURITIES EXCHANGE ACT OF 1934 

AND SECTIONS 203(e) AND 203(k) OF THE 

INVESTMENT ADVISERS ACT OF 1940, 

MAKING FINDINGS, AND IMPOSING 

REMEDIAL SANCTIONS AND A CEASE-

AND-DESIST ORDER 

   

 

I. 

 The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 

public interest that public administrative and cease-and-desist proceedings be, and hereby are, 

instituted pursuant to Section 15(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and 

Sections 203(e) and 203(k) of the Investment Advisers Act of 1940 (“Advisers Act”) against J.P. 

Morgan Securities LLC (“Respondent”). 

II. 

 In anticipation of the institution of these proceedings, Respondent has submitted an Offer 

of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 

purpose of these proceedings and any other proceedings brought by or on behalf of the 

Commission, or to which the Commission is a party, and without admitting or denying the findings 

herein, except as to the Commission’s jurisdiction over Respondent and the subject matter of these 

proceedings, which are admitted, Respondent consents to the entry of this Order Instituting 

Administrative and Cease-and-Desist Proceedings, Pursuant to Section 15(b) of the Securities 

Exchange Act of 1934 and Sections 203(e) and 203(k) of the Investment Advisers Act of 1940, 

Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order (“Order”), as 

set forth below. 



 

 2 

III. 

 On the basis of this Order and Respondent’s Offer, the Commission finds1 that: 

Summary 

1. This matter arises from disclosure violations by J.P. Morgan Securities LLC (“JP 

Morgan Securities”), a dually registered investment adviser and broker-dealer, in connection with 

its advisory program known as the Portfolio Manager Program (“PM Program”).  Since at least July 

2017 until October 11, 2024 (the “Relevant Period”), JP Morgan Securities failed to fully and fairly 

disclose the financial incentive of itself and certain of its financial advisors2 to recommend the PM 

Program over advisory programs offered by JP Morgan Securities that use third-party managers.  JP 

Morgan Securities also failed to adopt and implement written compliance policies and procedures 

reasonably designed to prevent violations of the Advisers Act and the rules thereunder in 

connection with the disclosure of conflicts of interest presented by the fee structure of the advisory 

programs for itself and its financial advisors. 

Respondent 

2. JP Morgan Securities is a Delaware limited liability company with its principal 

place of business in New York, New York.  It has been dually registered with the Commission as a 

broker-dealer and investment adviser since December 13, 1985, and April 3, 1965, respectively.  In 

its Form ADV dated March 28, 2024, JP Morgan Securities reports that it has approximately $249.7 

billion in regulatory assets under management (“AUM”).  JP Morgan Securities is a wholly owned 

subsidiary of JPMorgan Chase & Co., a global financial services firm incorporated in Delaware and 

headquartered in New York, New York. 

JP Morgan Securities’ Discretionary Wrap Fee Programs 

3. Discretionary wrap fee programs are advisory programs in which clients pay JP 

Morgan Securities an asset-based fee for asset management, and JP Morgan Securities agrees not to 

charge clients any transaction-based fees for the purchase or sale of securities in client accounts.  

The term “discretionary” refers to the ability of portfolio managers to make buy and sell decisions 

on behalf of their clients without first proposing each trade to the client for approval.  JP Morgan 

Securities offers discretionary wrap fee programs including the PM Program, in which approved 

financial advisors serve as portfolio managers, and programs that offer investment strategies 

managed by third-party portfolio managers, such as the Strategic Investment Services Program 

                                                 
1  The findings herein are made pursuant to Respondent’s Offer of Settlement and are not 

binding on any other person or entity in this or any other proceeding. 

2  JP Morgan Securities used a number of terms to refer to its financial advisors during the 

Relevant Period; in 2017-2018 they were called Advisory Representatives, in 2019-2020 they 

were called Financial Advisors, and starting in 2021 they are called Wealth Advisors.  In 

addition to being investment advisory representatives, financial advisors are also registered 

representatives of the broker-dealer. 



 

 3 

(“STRATIS”), Unified Managed Account Program (“UMA”), and Investment Counseling Service 

Program (“ICS”) (together, “Third-Party Manager Programs” or “TPM Programs”).  The PM 

Program and TPM Programs described below are offered by JP Morgan Securities through its sales 

channel known as J.P. Morgan Advisors. 

4. The PM Program is a discretionary wrap fee program in which an approved JP 

Morgan Securities financial advisor constructs client portfolios based on a set of investment 

strategies that JP Morgan Securities has approved for each eligible financial advisor.  During the 

Relevant Period, there were approximately 190 financial advisors in the PM Program with 750 total 

strategies.  Most PM Program strategies are similar to strategies offered by other investment 

advisers available through the TPM Programs.  However, the PM Program strategies are different in 

that the PM Program financial advisor is also the portfolio manager for the investment strategy, 

clients have direct access to the person selecting individual securities, and can request portfolio 

modifications based on their individual circumstances (e.g., tax considerations).   

5. Since the end of 2016, AUM in the PM Program grew from approximately $10.5 

billion to more than $30 billion in 2022.     

6. The TPM Programs are advisory programs in which financial advisors identify and 

advise clients to invest in strategies managed by third-party advisory firms.  Similar to the PM 

Program, strategies run by the third-party advisory firms typically invest in equity, fixed income, or 

balanced strategies.  The client works with their JP Morgan Securities financial advisor to select 

TPM Program strategies that meet their investment goals.  Unlike the PM Program, clients do not 

have direct access to the TPM Program portfolio managers and have limited ability to request 

portfolio modifications.  

7. JP Morgan Securities financial advisors have the ability to recommend that clients 

invest in strategies offered in the TPM Programs, but only approved financial advisors are permitted 

to offer their own PM Program strategies.    

JP Morgan Securities’ Financial Incentive to Recommend the PM Program 

8. As described further below, the fee structures of the PM Program and TPM 

Programs and the minimum AUM requirement for PM Program financial advisors create an 

incentive for JP Morgan Securities and financial advisors to recommend the PM Program over the 

TPM Programs.   

9. For both the PM Program and TPM Programs JP Morgan Securities charges a wrap 

fee that is capped at 2% of client assets in the account, but the wrap fee is negotiable and financial 

advisors have discretion to lower the percentage fee charged, including at the request of clients.  In 

practice, most financial advisors charge a wrap fee of far less than the 2% maximum.   

10. In addition to the JP Morgan Securities wrap fee, clients in the TPM Programs pay a 

separate fee to the third-party manager (“TPM Fee”), which cannot be negotiated by financial 

advisors.  For STRATIS and UMA, JP Morgan Securities collects the TPM Fee and pays it to the 

third-party manager.  For ICS, because the program is dual-contract, the client separately pays a 



 

 4 

wrap fee to JP Morgan Securities and another fee to the third-party manager.  This additional fee is 

not applicable in the PM Program because JP Morgan Securities financial advisors manage the 

strategies. 

11. Clients typically pay a lower overall fee when using the PM Program as compared to 

the TPM Programs.  However, financial advisors approved for the PM Program typically charge a 

higher JP Morgan Securities wrap fee to PM Program accounts (where the FA provides additional 

portfolio management services) than those financial advisors charge to TPM Program accounts.   

12. Financial advisors are compensated in accordance with the fees they generate for JP 

Morgan Securities and based on a compensation grid, which dictates the percentage split of the fees 

between JP Morgan Securities and the financial advisor.  For example, during the Relevant Period, 

financial advisors generating at least $500,000 in fees for JP Morgan Securities received 40-50% of 

that amount.  The rest was retained by JP Morgan Securities. 

13. For the PM Program, JP Morgan Securities and its financial advisors keep 100% of 

the wrap fee paid by the client.  As a result, 100% of the fee is credited to the compensation grid for 

purposes of calculating the financial advisor’s compensation.  When clients are invested in the TPM 

Programs, the client pays both a wrap fee to JP Morgan Securities and a separate fee to the third-

party managers, typically resulting in a higher overall fee to the client.  JP Morgan Securities and its 

financial advisors keep 100% of the wrap fee for the TPM Programs, which is credited to the grid.  

However, the financial advisor does not receive any part of the TPM Fee.   

14. In part because clients do not pay a separate third-party fee when invested in PM 

Program strategies, JP Morgan Securities and its financial advisors are able to charge a higher wrap 

fee for the PM Program, while maintaining a lower overall fee for the client.  The opportunity to 

charge a higher wrap fee for PM Program strategies creates a financial incentive for JP Morgan 

Securities and its financial advisors to recommend the PM Program over the TPM Programs.  Prior 

to August 2021, there was no disclosure concerning this financial incentive for financial advisors, 

and prior to October 11, 2024, there was no disclosure regarding this financial incentive for JP 

Morgan Securities. 

15. PM Program financial advisors who do not maintain at least $20 million in AUM 

after two years within the PM Program generally lose their eligibility to participate in that program.  

This creates an additional incentive for approved financial advisors to recommend that clients put 

and keep their assets in the PM Program strategies rather than TPM Programs.  Neither the $20 

million minimum AUM, nor the fact that financial advisors could lose their ability to offer PM 

Program strategies if they fall below that amount, nor the resulting incentive to place client assets in 

the PM Program, was disclosed to clients until October 11, 2024. 



 

 5 

JP Morgan Securities Failed to Adequately Disclose its and its PM Program Financial 

Advisors’ Financial Incentives to Recommend the PM Program 

16. During the Relevant Period, JP Morgan Securities did not adequately disclose all 

material facts concerning the incentives to recommend the PM Program over the TPM Programs.  

The PM Program’s ADV brochure dated June 9, 2017, stated that: 

[JP Morgan Securities] typically pays a portion of the Wrap Fee and any Incentive 

Fee it receives from each client in the [PM Program] to the Advisory Representative 

for that client.  The exact portion of such fees . . . is most commonly within a range 

from 40% to 50%.  Because the amount received by an Advisory Representative as a 

result of a client’s participation in the [PM Program] may be more than the Advisory 

Representative would receive if the client participated in another J.P. Morgan 

Securities investment advisory program or paid separately for investment advice, 

brokerage and other services covered by the Wrap Fee, the Advisory Representative 

may have a financial incentive to recommend the [PM Program] over other 

programs or services. 

17. This PM Program disclosure did not provide full and fair disclosure as to the 

conflict created by the differences in the fee structure between the PM Program and TPM 

Programs, and specifically the opportunity to charge a higher wrap fee for PM Program strategies.  

Indeed, JP Morgan Securities used the same language in describing the TPM Programs in its ADV 

brochure for the TPM Programs, even though those programs typically provide JP Morgan 

Securities and its financial advisors with less compensation than the PM Program.3  

18. As a result, the PM Program brochure disclosure used until August 2021 did not 

disclose the conflicts of interest that PM Program financial advisors have when recommending that 

clients invest through the PM Program over the TPM Programs, particularly the fact that financial 

advisors most often negotiate a higher JP Morgan Securities fee when clients participate in the PM 

Program, which has no separate portfolio manager fee, instead of in TPM Programs where clients 

also pay a separate portfolio manager fee.  The disclosure was also unclear because in addition to 

                                                 
3  The TPM Programs’ brochure disclosure stated that: 

 

A portion of [JP Morgan Securities’ component of the Fee] is generally paid to 

the J.P. Morgan Securities Advisory Representative servicing the client’s [TPM 

Program] accounts[(s)], who also may have recommended that the client 

participate in [the TPM Program].  Because the amount received by an Advisory 

Representative as a result of a client’s participation in [the TPM Program] may be 

more than the Advisory Representative would receive if the client participated in 

another J.P. Morgan Securities investment advisory program or paid separately 

for investment advice, brokerage and other services covered by the Fee, the 

Advisory Representative may have a financial incentive to recommend [the TPM 

Program] over other programs or services. 

 



 

 6 

comparing the PM Program to other wrap fee programs, it also compared non wrap-fee program 

services provided by JP Morgan Securities, making it difficult for a client to understand what 

exactly is being disclosed.  Until October 11, 2024, the disclosure also did not mention JP Morgan 

Securities’ conflict of interest, which is separate from the financial advisor’s conflict.  Until 

October 11, 2024, there was no disclosure regarding JP Morgan Securities’ financial incentive to 

recommend that clients invest through the PM Program over the TPM Programs. 

19. Furthermore, until October 11, 2024, the brochure made no disclosure regarding the 

incentive for financial advisors to put and keep client assets in PM Program strategies to help the 

financial advisor maintain the required minimum AUM in the PM Program.  JP Morgan Securities 

did not disclose that financial advisors approved for the PM Program were required to maintain a 

minimum PM Program AUM after two years, nor that financial advisors who do not maintain that 

minimum AUM in the PM Program could be removed from the program.  JP Morgan Securities 

described a number of other factors that could lead to a financial advisor being removed from the 

PM Program.   

JP Morgan Securities Failed to Implement Written Policies and Procedures Reasonably 

Designed to Prevent Violations of the Advisers Act and the Rules Thereunder 

20. During the Relevant Period, JP Morgan Securities failed to adopt and implement 

written policies and procedures reasonably designed to prevent violations of the Advisers Act and 

the rules thereunder in connection with the disclosure of conflicts of interest presented by the fee 

structure for its advisory programs or the compensation to its financial advisors.  Other than 

generalized statements that conflicts of interest should be disclosed, JP Morgan Securities’ policies 

and procedures did not contain any specific guidance regarding the disclosure of conflicts of 

interest.  

Violations 

21. As a result of the conduct described above, JP Morgan Securities willfully4 violated 

Section 206(2) of the Advisers Act, which prohibits an investment adviser, directly or indirectly, 

from engaging “in any transaction, practice, or course of business which operates as a fraud or 

deceit upon any client or prospective client.”  Scienter is not required to establish a violation of 

Section 206(2), which may rest on a finding of simple negligence.  SEC v. Steadman, 967 F.2d 

                                                 
4  “Willfully,” for purposes of imposing relief under Section 15(b) of the Exchange Act and 

Section 203(e) of the Advisers Act, “‘means no more than that the person charged with the duty 

knows what he is doing.’”  Wonsover v. SEC, 205 F.3d 408, 414 (D.C. Cir. 2000) (quoting 

Hughes v. SEC, 174 F.2d 969, 977 (D.C. Cir. 1949)).  There is no requirement that the actor 

“also be aware that he is violating one of the Rules or Acts.”  Tager v. SEC, 344 F.2d 5, 8 (2d 

Cir. 1965).  The decision in The Robare Group, Ltd. v. SEC, which construed the term 

“willfully” for purposes of a differently structured statutory provision, does not alter that 

standard.  922 F.3d 468, 478-79 (D.C. Cir. 2019) (setting forth the showing required to establish 

that a person has “willfully omit[ted]” material information from a required disclosure in 

violation of Section 207 of the Advisers Act). 



 

 7 

636, 643 n.5 (D.C. Cir. 1992) (citing SEC v. Capital Gains Research Bureau, Inc., 375 U.S. 180, 

194-95 (1963)). 

22. As a result of the conduct described above, JP Morgan Securities willfully violated 

Section 206(4) of the Advisers Act and Rule 206(4)-7 thereunder, which requires investment 

advisers registered or required to be registered with the Commission to adopt and implement 

written policies and procedures reasonably designed to prevent violations of the Advisers Act and 

the rules thereunder. 

IV. 

 In view of the foregoing, the Commission deems it appropriate, and in the public interest, 

to impose the sanctions agreed to in Respondent’s Offer. 

 

 Accordingly, pursuant to Section 15(b) of the Exchange Act and Sections 203(e) and 

203(k) of the Advisers Act, it is hereby ORDERED that: 

 

 A. JP Morgan Securities cease and desist from committing or causing any violations 

and any future violations of Sections 206(2) and 206(4) of the Advisers Act and Rule 206(4)-7 

promulgated thereunder.  

 

B. JP Morgan Securities is censured. 

 

C. JP Morgan Securities shall, within 21 days of the entry of this Order, pay a civil 

monetary penalty in the amount of $45 million to the Securities and Exchange Commission for 

transfer to the general fund of the United States Treasury, subject to Exchange Act Section 

21F(g)(3).  If timely payment is not made, additional interest shall accrue pursuant to 31 U.S.C. 

§ 3717. 

 

Payment must be made in one of the following ways:   

 

(1) Respondent may transmit payment electronically to the Commission, which 

will provide detailed ACH transfer/Fedwire instructions upon request;  

 

(2) Respondent may make direct payment from a bank account via Pay.gov 

through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or  

 

(3) Respondent may pay by certified check, bank cashier’s check, or United 

States postal money order, made payable to the Securities and Exchange 

Commission and hand-delivered or mailed to:  

 

Enterprise Services Center 

Accounts Receivable Branch 

HQ Bldg., Room 181, AMZ-341 

6500 South MacArthur Boulevard 

http://www.sec.gov/about/offices/ofm.htm


 

 8 

Oklahoma City, OK 73169 

 

Payments by check or money order must be accompanied by a cover letter identifying JP 

Morgan Securities as a Respondent in these proceedings, and the file number of these proceedings; 

a copy of the cover letter and check or money order must be sent to Virginia Rosado Desilets, 

Assistant Director, Securities and Exchange Commission, Division of Enforcement, 100 F St., NE, 

Washington, DC 20549-5012. 

 

Amounts ordered to be paid as civil money penalties pursuant to this Order shall be treated 

as penalties paid to the government for all purposes, including all tax purposes.  To preserve the 

deterrent effect of the civil penalty, Respondent agrees that in any Related Investor Action, it shall 

not argue that it is entitled to, nor shall it benefit by, offset or reduction of any award of 

compensatory damages by the amount of any part of Respondent’s payment of a civil penalty in 

this action (“Penalty Offset”).  If the court in any Related Investor Action grants such a Penalty 

Offset, Respondent agrees that it shall, within 30 days after entry of a final order granting the 

Penalty Offset, notify the Commission’s counsel in this action and pay the amount of the Penalty 

Offset to the Securities and Exchange Commission.  Such a payment shall not be deemed an 

additional civil penalty and shall not be deemed to change the amount of the civil penalty imposed 

in this proceeding.  For purposes of this paragraph, a “Related Investor Action” means a private 

damages action brought against Respondent by or on behalf of one or more investors based on 

substantially the same facts as alleged in the Order instituted by the Commission in this 

proceeding. 

 

 By the Commission. 

 

 

 

Vanessa A. Countryman 

        Secretary 

 

 


	UNITED STATES OF AMERICA
	Respondent
	JP Morgan Securities’ Discretionary Wrap Fee Programs