UNITED STATES OF AMERICA

Before the

SECURITIES AND EXCHANGE COMMISSION

INVESTMENT ADVISERS ACT OF 1940

Release No. 4747 / August 16, 2017

ADMINISTRATIVE PROCEEDING

File No. 3-18114

In the Matter of

INSTITUTIONAL 

INVESTORS ADVISORY 

COMPANY

Respondent.

ORDER INSTITUTING CEASE-AND-DESIST 

PROCEEDINGS PURSUANT TO SECTION 

203(k) OF THE INVESTMENT ADVISERS 

ACT OF 1940, MAKING FINDINGS, AND 

IMPOSING A CEASE-AND-DESIST ORDER 

I.

The Securities and Exchange Commission (“Commission”) deems it appropriate that ceaseand-desist proceedings be, and hereby are, instituted pursuant to Section 203(k) of the Investment 

Advisers Act of 1940 (“Advisers Act”) against Institutional Investors Advisory Company (“IIAC” 

or “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 it and the subject matter of these 

proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Ceaseand-Desist Proceedings Pursuant to Section 203(k) of the Investment Advisers Act of 1940, 

Making Findings, and Imposing a Cease-and-Desist Order (“Order”), as set forth below. 
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III.

On the basis of this Order and Respondent’s Offer, the Commission finds1that:

SUMMARY

1. IIAC’s business consists solely of advising Institutional Investors Investment 

Fund (“IIIF”), an investment fund controlled by IIAC owner and president William L. Zielinski 

(“Zielinski”) that serves tax-exempt charitable, religious and educational institutions. From the 

inception of IIAC in 1970 to approximately April 2014, IIAC also served as the investment 

adviser to certain institutions that invested in IIIF vis-à-vis advisory agreements that IIAC 

entered into with these particular institutions. The agreements were titled Managing Agency 

Agreements (“MAAs”) and provided that investors that entered into an MAA (“MAA 

Investors”) would receive a distribution of all income less expenses earned on investments in 

IIIF. These proceedings arise out of IIAC’s breach of fiduciary duty and failure to make adequate 

disclosures regarding the distribution of investor profits and its conflict of interest regarding a 

portion of its advisory fees. 

2. IIIF, under Mr. Zielinski’s direction, created a reserve fund (“Reserve Fund” or 

“Reserve”) in 1993 to smooth investment earnings by either transferring “excess” investor profits 

into the Reserve when investment profits exceeded a fixed rate of return established by IIIF’s 

board of directors (the “Stated Return”) or by distributing funds from the Reserve to IIIF’s 

investors if profits fell below the Stated Return to ensure investor earnings met the Stated Return. 

According to IIAC and IIIF, the primary purposes of the Reserve were to: (i) maintain 

consistency of IIIF’s distributions and (ii) provide liquidity for IIIF investors who expected 

immediate return of their capital. Contrary to a representation made in the MAAs, however, Mr. 

Zielinski authorized IIIF to retain withdrawing investors’ pro rata share of undistributed earnings 

in the Reserve. Although Mr. Zielinski, who was responsible for IIAC’s and IIIF’s disclosures to 

investors, made disclosures to the MAA Investors regarding the existence, purpose and operation 

of the Reserve, neither Mr. Zielinski nor IIAC sufficiently disclosed to the MAA Investors until 

2014 that upon withdrawing from IIIF they would not receive all of their profits. 

3. Further, starting in 2001, IIAC’s advisory fee was applied to all of IIIF’s assets, 

including the investor profits that IIIF retained in the Reserve Fund. Earning advisory fees on the 

assets in the Reserve created a conflict of interest for IIAC – the more of IIIF’s income that IIIF 

retained in the Reserve (as opposed to distributing it to investors), the more fees IIAC earned. 

IIAC failed to adequately disclose this conflict to the MAA Investors. 

RESPONDENT

4. IIAC, based in St. Louis, Missouri, has been registered with the Commission as an 

investment adviser since July 2012 and, previously, with the state of Missouri. IIAC was founded 

 

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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. 
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in 1970 by William L. Zielinski, who is the sole owner and president. As of March 22, 2017, IIAC 

had approximately $350 million in assets under management. 

OTHER RELEVANT PARTIES

5. Institutional Investors Investment Fund, incorporated in Missouri in 1970, was

created by religious institutes of the Catholic Church as an investment vehicle for not-for-profit 

religious, charitable and educational organizations and operates as a tax-exempt entity pursuant to 

Section 501(c)(2) of the Internal Revenue Code (“501(c)(2)”). IIIF is not registered as an 

investment company under the Investment Company Act of 1940 pursuant to the exemption from 

the definition of “investment company” in Section 3(c)(10) of the Investment Company Act. 

Respondent has served as IIIF’s only investment adviser.

6. William L. Zielinski, age 90, is registered as an investment adviser representative 

with the state of Missouri. As a means to provide investment advice to IIIF and to ensure 

compliance with the terms of IIIF’s 501(c)(2) tax exemption, Mr. Zielinski founded IIAC, which 

has served as IIIF’s investment adviser for the past 46 years. In addition to serving as IIAC’s 

president, he also serves as the president of IIIF and sits on the board of directors of IIAC and 

IIIF along with certain other members of his family who are associated with IIAC. Mr. Zielinski 

is a resident of St. Louis, Missouri.

FACTS

A. Advisory Relationship between IIAC and the MAA Investors

7. The MAAs constituted an advisory agreement with the MAA Investors. From its 

inception until approximately 2002, IIAC required each tax-exempt organization that wanted to 

invest in IIIF to execute an MAA, which were signed by Mr. Zielinski on behalf of IIAC. IIAC 

and IIIF utilized the MAAs in an attempt to ensure compliance with the terms of its 501(c)(2) tax 

exemption, which required among other things that IIIF operate “within [its] stated purposes to 

hold title to property, collect income therefrom and turn over the entire amount thereof, less 

expenses, to [investors]....” 

8. The MAAs provided that IIAC was ultimately responsible for distributing net 

income to the MAA Investors and that “[t]he entire amount of income collected by [IIIF], less 

expenses of [IIIF], will be distributed to the [MAA Investors] on a pro-rata basis.” The MAAs 

set forth the advisory fees that these investors were expected to pay IIAC for its advisory 

services. 

9. Accordingly, the MAAs served as the basis for the advisory relationship between 

IIAC and the MAA Investors. IIAC served as the investment adviser to the MAA Investors from 

the time these investors joined IIIF until their MAA agreements were terminated in April 2014. 

Consequently, IIAC owed a fiduciary duty to the MAA Investors. 
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B. Disclosures Regarding the Reserve Fund

10. In approximately November 1993, IIIF’s board of directors, which included Mr. 

Zielinski who was also IIIF’s president, began using the Reserve Fund to provide investors with 

liquidity, a steady rate of return and protection from potential investment losses in any given 

month. IIIF’s Reserve consists of IIIF’s investment profits in excess of the Stated Return that 

IIIF’s board determines will be distributed to investors. Accordingly, on a monthly basis, IIIF 

either transfers its investment profits in excess of the Stated Return established by the board into 

the Reserve or pays investors with funds from the Reserve if profits fall below the Stated Return to 

ensure investor earnings meet the return. During the operation of the Reserve, IIIF has maintained 

the Stated Return between 5% and 6.7%.

11. MAA Investors that withdrew from IIIF as investors did not receive their pro rata 

profit that was remaining in the Reserve Fund at the time of their withdrawal. 

12. Neither Mr. Zielinski nor IIAC disclosed the existence of the Reserve to the MAA 

Investors when the Reserve was first established. Subsequent disclosures provided to the MAA 

Investors between 2002 and 2013 mentioned the Reserve Fund in varying degrees of specificity, 

but none adequately disclosed that the MAA Investors would not receive any of their interests in 

the Reserve upon their withdrawal from IIIF. Specifically, in 2002, Mr. Zielinski first made 

general disclosures to the MAA Investors about the Reserve and its goal to maintain current 

income and provide consistent investment returns in IIIF’s brochures (“Fund Brochures”) 

distributed to the MAA Investors. However, these disclosures did not provide the MAA 

Investors with sufficient notice that they would not receive any of their pro rata interest in the 

Reserve upon withdrawing from IIIF. Further, IIAC did not take any measures to revise the 

MAAs to describe the operation of the Reserve and its impact on the amount of income that the 

MAA Investors would (or would not) receive. Such disclosures would have been significant 

given that, based on their MAAs, the MAA Investors would have expected to receive all net 

income as investors in IIIF.

13. Not until April 2014 were the MAA investors more fully informed about their 

rights in the Reserve Fund. Specifically, in an effort to address the concerns regarding insufficient 

disclosures raised by the Chicago Regional Office’s staff in the Commission’s Office of 

Compliance Inspections and Examinations (“OCIE”), Mr. Zielinski authorized IIIF to revise the 

disclosure documents as follows: 

Member understands the Fund utilizes a reserve for purposes of funding redemptions and 

normalizing distributions to members. By reserving a portion of the Fund’s assets, the 

Fund is able to have cash on hand to fund member withdrawals and to pay higher returns in 

periods when its actual return on investment may be lower. Member understands and 

acknowledges that a portion of the income earned on Member’s participation in the Fund 

will become part of the Fund’s reserve, which Member will not have a right to upon 

withdrawal from the Fund....
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14. From at least January 2011 to April 2014, certain MAA Investors did not receive 

their portion of the Reserve upon departing IIIF. These MAA Investors unknowingly left 

$1,268,536 remaining in the Reserve, i.e., IIIF did not distribute these funds to them upon their 

withdrawal. 

C. Disclosures Regarding Advisory Fees Imposed on the Reserve Fund

15. In 2001, several years after IIIF established the Reserve Fund, IIAC began charging 

advisory fees on the investor profits that IIIF retained in the Reserve among other of IIIF’s assets. 

The MAAs and other disclosure documents disseminated by IIIF to the MAA Investors generally 

provided that IIAC’s advisory fees for managing IIIF would be a percentage of “the average net 

asset value of the property held hereunder.” 

16. This disclosure did not adequately disclose that the assets in the Reserve were

included in the assets upon which IIAC’s advisory fees were based. Also, the disclosure was 

deficient because it did not address the inherent conflict of interest that was created when IIAC 

began generating fees from the Reserve. Specifically, earning advisory fees on the assets in the 

Reserve created a conflict of interest for IIAC – the more of IIIF’s income IIIF transferred to the 

Reserve (as opposed to distributing it to investors), the more fees IIAC earned. IIAC failed to 

adequately disclose this conflict to the MAA Investors. 

17. In April 2014, in light of OCIE’s concerns about the adequacy of the disclosures 

regarding IIAC’s advisory fees on the Reserve Fund, IIIF revised its disclosures to the MAA 

Investors to explain that IIAC would charge advisory fees to manage the assets in the Reserve. 

The revised disclosure provided that IIIF would “pay its investment adviser ... a monthly fee of 

1/12th of 0.89% of the Fund’s asset value, which includes the assets transferred by Members to the 

Fund and earnings thereon (including the reserve)....” Thus, in April 2014, the first disclosure was 

made to the MAA Investors clearly stating that the Reserve was included in the assets upon which 

IIIF would pay advisory fees. 

18. From January 2011 to April 2014, IIAC received a total of $531,680 in advisory 

fees on the Reserve Fund from the MAA Investors.

VIOLATION

19. As a result of the conduct described above, IIAC violated Section 206(2) of the 

Advisers Act, which prohibits investment advisers from engaging “in any transaction, practice, or 

course of business which operates as a fraud or deceit upon any client or prospective client.” 

Investment advisers have a duty to disclose potential conflicts of interest. See Vernazza v. SEC, 

327 F.3d 851, 860 (9th Cir. 2003) (affirming that “petitioners had a duty to disclose potential 

conflicts of interest accurately . . .”). A violation of Section 206(2) may rest on a finding of simple 

negligence. SEC v. Steadman, 967 F.2d 636, 643 n. 5 (D.C. Cir. 1992) (citing SEC v. Capital 

Gains Research Bureau, Inc., 375 U.S. 180, 195 (1963)). Proof of scienter is not required to 

establish a violation of Section 206(2) of the Advisers Act. Id. 
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IIAC’S REMEDIAL EFFORTS

20. In determining to accept the Offer, the Commission considered remedial acts 

promptly undertaken by Respondent and cooperation afforded the Commission staff. 

UNDERTAKINGS

21. Respondent undertakes to pay $1,268,536, which represents the amount of profits 

that the MAA Investors left remaining in the Reserve Fund upon their withdrawal from IIIF, and 

prejudgment interest thereon of $146,750 to the Securities and Exchange Commission for the Fair 

Fund established in Section IV.C. of this Order to compensate the MAA Investors for harm 

caused by the conduct set forth in this Order. Payment shall be made in the following 

installments: $283,057.20 within 10 days of the entry of the Order; $424,585.80 on or before 180 

days of the entry of the Order; and $707,643 on or before 364 days of the entry of the Order. 

Pursuant to Section 308(b) of the Sarbanes-Oxley Act of 2002, as amended, this amount shall be 

accepted by the Commission as an additional payment to the Fair Fund and distributed as set 

forth in Paragraph IV.D. of this Order. 

22. The payment described in Paragraph 21 may 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

Oklahoma City, OK 73169

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

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 Robert Burson, Associate Director, Division 

of Enforcement, Securities and Exchange Commission, 175 W. Jackson Blvd., Suite 1450, 

Chicago, IL 60604. 

23. Respondent shall cooperate fully with the Commission staff and shall provide the 

Commission staff with access to files, books, records, and personnel as reasonably requested, until 
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the Fair Fund distribution as described in paragraph IV.D. below has been fulfilled as determined 

by the Commission staff. 

24. In determining whether to accept the Offer, the Commission has considered these

undertakings. Respondent agrees that if the Division of Enforcement (“Division”) believes that 

Respondent has not satisfied these undertakings, the Division may petition the Commission to 

reopen this matter to determine whether additional sanctions are appropriate.

IV.

In view of the foregoing, the Commission deems it appropriate to impose the sanctions 

agreed to in IIAC’s Offer.

Accordingly, pursuant to Section 203(k) of the Advisers Act, it is hereby ORDERED that:

A. Respondent cease and desist from committing or causing any violations and any 

future violations of Section 206(2) of the Advisers Act. 

B. Respondent shall pay to the Securities and Exchange Commission: (i) disgorgement 

of $531,680; (ii) prejudgment interest thereon of $61,507; and (iii) a civil money penalty in the 

amount of $250,000. Payment shall be made in the following installments: $168,637.40 within 10 

days of the entry of the Order; $252,956.10 on or before 180 days of the entry of the Order; and 

$421,593.50 on or before 364 days of the entry of the Order. If any payment is not made by the 

date the payment is required by this Order, the entire outstanding balance of disgorgement, 

prejudgment interest, and civil penalties, plus any additional interest accrued pursuant to SEC Rule 

of Practice 600 and/or 31 U.S.C. §3717, shall be due and payable immediately, without further 

application.

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

Oklahoma City, OK 73169
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Payments by check or money order must be accompanied by a cover letter identifying IIAC 

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 Robert Burson, Associate Director, Division 

of Enforcement, Securities and Exchange Commission, 175 W. Jackson Blvd., Suite 1450, 

Chicago, IL 60604. 

C. Pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002, as amended, a Fair 

Fund is created for the payment referenced in paragraph III.21 above and the disgorgement, 

prejudgment interest and penalties referenced in paragraph IV.B. above. 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.

D. After receipt of Respondent IIAC’s payments of the civil penalty and the payments 

described in paragraphs III.21 and IV.B. above, the Commission shall make payments from the 

Fair Fund described in paragraph IV.C. to the investors described as Clients 1 through 107 in 

Exhibit 1 hereto, in the amounts set forth in Exhibit 1. The amount of each of these payments

represents the dollar amount by which each client was affected by the conduct described above, as 

calculated by the Commission staff and agreed upon by Respondent IIAC. Commission staff shall 

seek the appointment of a tax administrator for the above payments to harmed investors as they 

constitute payments from a qualified settlement fund under section 468B(g) of the Internal 

Revenue Code (IRC), 26 U.S.C. §468B(g), and related regulations, 26 C.F.R. §§1.468B-1 through 

1.468B-5. Taxes, if any, and related administrative expenses shall be paid from the Fair Fund. 

After the Commission makes the foregoing payments, any remaining funds shall be remitted to the 

United States Treasury. 

By the Commission.

Brent J. Fields

Secretary
EXHIBIT 1

Client 1 $ 39,036.68 Client 45 $ 2,847.23 Client 89 $ 63,711.66

Client 2 $ 36,745.06 Client 46 $ 2,737.89 Client 90 $ 302.35

Client 3 $ 35,878.17 Client 47 $ 2,654.21 Client 91 $ 292.31

Client 4 $ 31,731.18 Client 48 $ 2,593.97 Client 92 $ 284.50

Client 5 $ 28,985.48 Client 49 $ 371.52 Client 93 $ 282.27

Client 6 $ 27,934.50 Client 50 $ 2,557.15 Client 94 $ 213.10

Client 7 $ 22,112.86 Client 51 $ 2,341.82 Client 95 $ 197.48

Client 8 $ 20,955.90 Client 52 $ 2,316.16 Client 96 $ 187.43

Client 9 $ 19,079.32 Client 53 $ 2,224.67 Client 97 $ 176.28

Client 10 $ 18,117.60 Client 54 $ 2,074.06 Client 98 $ 174.05

Client 11 $ 17,046.54 Client 55 $ 1,782.86 Client 99 $ 142.81

Client 12 $ 16,004.49 Client 56 $ 1,661.25 Client 100 $ 137.23 

Client 13 $ 15,742.30 Client 57 $ 1,661.25 Client 101 $ 82.56

Client 14 $724,267.14 Client 58 $ 1,653.44 Client 102 $ 46.86

Client 15 $ 12,980.99 Client 59 $ 1,502.83 Client 103 $ 5,570.86

Client 16 $ 12,847.10 Client 60 $ 1,461.55 Client 104 $ 23.43

Client 17 $ 10,210.74 Client 61 $ 1,460.43 Client 105 $ 16.74

Client 18 $ 10,052.32 Client 62 $ 1,401.30 Client 106 $ 8.93

Client 19 $ 9,939.63 Client 63 $ 1,261.84 Client 107 $ 83,637.35

Client 20 $185,023.07 Client 64 $ 1,203.82

Client 21 $ 9,785.67 Client 65 $ 1,199.36

Client 22 $ 9,687.49 Client 66 $ 1,085.56

Client 23 $ 9,087.25 Client 67 $ 1,081.10

Client 24 $ 8,914.32 Client 68 $ 1,053.21

Client 25 $ 7,856.65 Client 69 $ 961.72

Client 26 $ 7,591.12 Client 70 $ 936.06

Client 27 $ 1,345.52 Client 71 $ 899.24

Client 28 $ 6,212.13 Client 72 $378,541.30

Client 29 $ 5,926.51 Client 73 $ 785.44

Client 30 $ 5,377.60 Client 74 $ 739.70

Client 31 $ 5,289.46 Client 75 $ 651.56

Client 32 $ 4,640.13 Client 76 $ 637.06

Client 33 $ 4,482.82 Client 77 $ 594.66

Client 34 $ 4,070.02 Client 78 $ 585.73

Client 35 $ 4,054.40 Client 79 $ 524.37

Client 36 $ 3,922.75 Client 80 $ 513.21

Client 37 $ 3,913.82 Client 81 $ 510.98

Client 38 $ 3,901.55 Client 82 $ 498.71

Client 39 $ 3,711.88 Client 83 $ 463.01

Client 40 $ 3,612.59 Client 84 $ 451.85

Client 41 $ 3,487.63 Client 85 $ 384.91

Client 42 $ 3,470.89 Client 86 $ 383.80

Client 43 $ 3,085.98 Client 87 $ 352.56

Client 44 $ 2,925.32 Client 88 $ 335.82