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Topic: Fund Expenses, Loads, and Fees

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 Ė and possibly invest in the funds receiving those allocations Ė 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 donít 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 fundís 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 Ė writing "average" instead of "aggregate," for instance Ė 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 Ė 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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Hedge Fund Manager Ordered to Pay $13 Million in Investor Fraud Case

August 25, 2017
Donít promise what you canít deliver, donít overvalue investments and donít take from Peter to pay Paul. Those seem to be the main lessons drawn from a federal courtís judgment against a hedge fund manager that the SEC has litigated against for the past seven years.

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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 Ė 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 canít 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 fundís 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, doesnít 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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Clover Capital Management Letter at 30: Still Making a Difference

October 7, 2016
Few SEC staff letters retain the kind of clout that makes them relevant through the passage of years. The Clover Capital Management letter, which has its 30-year anniversary October 28, is near the top of that select list.

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Private Equity Adviser Feels the Sting of SEC’s Fee, Expense and Disclosure Focus

September 23, 2016
Itís just the latest one, but itís telling: Private equity fund adviser First Reserve Management on September 14 settled SEC claims that it failed to disclose conflicts of interest involving fees and expenses it charged its funds.

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Private Equity Adviser Exams: Fees and Expenses Likely to Dominate the Visit

August 19, 2016
Advisers to private equity funds preparing for a visit from SEC examiners need to keep their eye on the ball: While examiners may inquire into a number of areas, the bulk of the visit is likely to be spent on the fees and expenses charged to funds and portfolio companies.

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Qualified Client Threshold Adjusted

June 24, 2016
Itís just a little adjustment Ė but a little may make the difference between being able to charge performance fees or not. The SEC on June 14 adjusted the dollar threshold used to exempt an adviser from the prohibition on charging performance fees.

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Pushing Losses to the Next Month to Realize Fees Not a Good Strategy

June 17, 2016
Donít push losses off until tomorrow if they occur today. That would seem to be the guiding principle behind the SECís complaint last month against a hedge fund manager that, the agency claims, orchestrated gains and losses among two funds so that they would each show gains Ė and the adviser could reap incentive payments.

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SEC Panel Wants Mutual Fund Costs Disclosed in Dollars on Account Statements

April 22, 2016
Disclosure of mutual fund fees and other costs in percentages in fund prospectuses or in shareholder reports may no longer be enough. An SEC committee wants those costs listed in dollar terms, and it wants them reported in account statements.

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Adviser Finds That Exemption Does Not Protect Against Enforcement

April 8, 2016
"Exempt" doesnít mean exempt from anti-fraud regulations or the SECís watchful eye. A venture capital fund adviser found this out the hard way when it reached a settlement with the agency over allegations that it misappropriated more than $18 million in investor funds.

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Fee Calculation Errors Leads to Enforcement Action Against Adviser

March 11, 2016
The SEC on March 2 settled an enforcement action with an adviser for allegedly charging clients too much in fees as a result of calculating them differently from the way agreed to in its advisory agreements. The thing is, though, that at other times the miscalculation led to the firm charging clients too little. Was this a case of the SEC going after an adviser for simple mistakes?

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Multiple Disclosure Issues Lead to Enforcement Against Hedge Fund Manager

February 5, 2016
Disclosure is a basic requirement of most SEC regulations. If you want a visit by the SEC, failure to disclose, particularly when it occurs more than once, is one of the best ways to ensure that you get one.

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Fee Disclosure Issues Cause Problems for Futures Fund Adviser

January 29, 2016
Improper fee disclosure has long been a red flag to SEC examiners and investigators. The problem is magnified when the failure to disclose results in overcharging clients. If the disclosure is corrected but refunds are not made to the clients, expect the agency to come calling.

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