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The weekly news source for investment management legal and compliance professionals

Topic: Fund Expenses, Loads, and Fees

Adviser in Court after SEC Charges Owner and Firm with Improper Transaction Costs

October 18, 2019
The owner of both an advisory firm and a broker-dealer found himself in federal court after the SEC filed charges that he and his advisory firm invested their clients in a version of a security that charged significant transactional sales charges – most of which the broker-dealer allegedly pocketed – when the identical security was available without these costs.

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SEC Staff to Fund Managers: Verify Accuracy of Performance and Fee Disclosures

October 11, 2019
The SEC’s Division of Investment Management is apparently not happy with mutual fund disclosures of their performance and fees. In new guidance issued October 7, the Division staff lists a number of improper practices that it has observed and says that funds and fund managers need to verify the accuracy of their performance and fee disclosures prior to filing them with the Commission and providing them to investors.

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16 More Advisers Avoid Civil Money Penalties under SEC’s Share Class Initiative

October 4, 2019
As if the 79 settlements announced in March were not enough, the SEC on September 30 announced settlements with 16 more advisory firms that self-reported share class violations. While all had to collectively pay almost $10 million in disgorgement and prejudgment interest, they were able to avoid paying civil money penalties. Meanwhile, a 17th adviser – one that did not self-report share class violations - settled with the agency and paid a $300,000 fine.

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SEC Alleges Adviser Engaged in Share Class Violations and Other Conflicts of Interest

September 6, 2019
The SEC’s focus on advisers placing clients in certain higher-fee mutual fund share classes when less expensive share classes of the same investment are available shows no sign of abating – as evidenced by the agency’s August 29 complaint in federal court charging a dually registered adviser with doing just that.

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‘Incubator Fees’ Land Private Fund Adviser in Court

August 23, 2019
One of the SEC’s perennial targets is advisers charging excessive fees – and then failing to disclose those fees to its clients or funds. In a complaint this month in federal court, the SEC charged an advisory firm to private venture capital funds and its owner with doing both.

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SEC Charges Former Advisory Firm COO Overbilled to Give Himself a Raise

April 5, 2019
Don’t steal from your clients and don’t steal from your employer. These seem like fairly easy rules to understand and follow – but the SEC and the U.S. Attorney’s Office for the Southern District of New York, in separate enforcement actions on March 28, charged a former advisory COO with doing both.

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Multiple Adviser Settlements Demonstrate Clout of SEC’s Share Class Initiative

March 15, 2019
The SEC knocked it out of the park this month, demonstrating to naysayers that its Share Class Selection Disclosure Initiative has been effective in appealing to advisory firms. The agency on March 11 announced settlements with 79 different advisory firms that chose to self-report their violations. While these firms collectively agreed to pay more than $125 million in disgorgement and interest, they also escaped having to pay civil money penalties.

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SEC Share Class Crackdown Continues and Shows No Sign of Abating

January 11, 2019
The SEC in late December settled charges against three advisory firms involving their alleged placement of clients in mutual fund share classes that assessed certain fees when less expensive share classes of the same funds were available. These settlements, as well as the inclusion of this practice in the agency’s 2019 examination priorities list, make clear that advisers, mutual funds and their legal representatives should not expect any let-up in these enforcement actions in the near future.

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Failure to Offset Fees May Result in Payments to Both Clients and the SEC

July 27, 2018
It’s great when fees come in, whether for management, consulting or something else. But check your governing documents – not all fees are meant to be kept by the advisory firm, and keeping such fees may result in a visit from the SEC’s Division of Enforcement staff.

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Fees and Expenses: OCIE Wants Advisers to Focus on the Nuts and Bolts

April 20, 2018
Sometimes it’s the basic things that get overlooked, like fees and expenses. When that happens in the asset management community, problems occur and examiners notice – which may be why the SEC’s Office of Compliance Inspections and Examinations this month issued a Risk Alert offering an "Overview of the Most Frequent Advisory Fee and Expense Compliance Issues Identified in Examinations of Investment Advisers." Chief compliance officers would be wise to pay attention.

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New Share Class Settlements May Increase Self-Reporting Pressure on Advisers

April 13, 2018
Is it a coincidence? With just under two months before the SEC’s Share Class Selection Distribution initiative’s self-reporting deadline, the agency on April 6 announced new share-class settlements with three advisory firms containing civil money penalties that collectively total almost $2 million. The SEC used the occasion to issue a press release that "strongly encourage[s]" advisers to participate and avoid such fines themselves.

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SEC Staff Rejects No-Action Request from Adviser Seeking Allocation Permission

November 3, 2017
Advisory firms seeking SEC staff permission to allocate certain fund operating expenses to other funds it manages – and possibly invest in the funds receiving those allocations – must first obtain a Rule 17d-1 exemptive order to overcome that potential conflict of interest. They should not seek a no-action letter, and they definitely should not begin allocating prior to receiving the exemptive order.

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Examiners and Enforcement Division Keep an Eye on the Fees and Expenses Ball

September 22, 2017
Fees and expenses, and how advisers allocate them, constitute much of what compliance is about. While some compliance officers may consider fee and expense allocation among the most basic of compliance practices, they should avoid the trap of thinking they have it covered, when in fact, they may not. Nor should they be lulled into believing that agency examiners and investigators don’t look for such violations, when, in fact, they do. This may be particularly true with private fund advisers.

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Failure to Disclose Reserve Funds and Related Fees May Lead to Enforcement

September 15, 2017
Reserve funds are sometimes created and used by advisory firms to "smooth" investor earnings or to ensure redemption requests can be met. Advisers that do so must disclose such a fund’s existence, ensure that fee policies are disclosed and avoid conflicts of interest. Failure to do so may lead to problems with examiners and agency enforcement.

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Inadequate Disclosure of Fee Calculations May Lead to Fee Returns

September 7, 2017
Advisers writing fund offering materials and operative documents must take care when disclosing how they calculate fees and expenses. A wrong word or phrase – writing "average" instead of "aggregate," for instance – is all it might take for the SEC to state that a disclosure is inadequate and that clients must be refunded a great deal of money.

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Fund Managers Should Disclose Before Using One Fund to Prop Up Another

August 25, 2017
Recipe for a conflict of interest: An adviser managing two funds causes one fund to invest in the second – but fails to disclose the investment to the investors of the first fund. The fund receiving the investments uses them to finance and help grow the advisory firm.

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Court Judgments Show SEC Focus on Conflicts of Interest and Fee Disclosure

June 23, 2017
An adviser should not move client dollars into new funds and fail to disclose that they will be charged additional fees. This is especially true when that same adviser created the new fund – and collects an additional fee from each client after doing so.

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Permission, Disclosure Required Before Tapping Funds to Keep Business Afloat

February 17, 2017
It probably can’t hurt to be reminded that the funds an adviser manages are not piggy banks that advisers can dip into when needed. Even if an advisory firm believes it is entitled to compensation beyond what it is contractually due, any such remuneration must be approved by the fund’s investors and fully disclosed.

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Mutual Funds Seeking to Modify Fees Must Meet Disclosure Requirements

January 13, 2017
Many mutual funds and their advisers, attempting to comply with the DOL Fiduciary Rule and meet the requirements of the related Best Interest Contract Exemption, are considering ways to "level" the fees they charge clients. Any such changes, the Division of Investment Management says in its new Guidance, must meet disclosure and procedural requirements.

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Implement Promised Corrections to Exam Findings … or Face the Consequences

October 14, 2016
The SEC, like Mother Nature, doesn’t like to be ignored. So after an investment adviser allegedly failed to make promised corrections to deficiencies found during three examinations conducted over six years, the agency launched an enforcement action.

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