- Compliance Services
- Cybersecurity & Risk
- Performance Services
- Technology Solutions
- Events & Education
Yesterday, the SEC’s Division of Investment Management (“the staff”) released an IM Guidance Update that focuses on mutual fund distribution and sub-accounting fees. The staff’s guidance and viewpoints follow the examination of mutual fund complexes, investment advisers, broker-dealers, and transfer agents under the “Distribution in Guise” sweep. The guidance update also follows the SEC's Division of Enforcement’s first enforcement action in this area, back in September 2015.
The guidance update presents the staff’s view “on issues that may arise when registered open-end investment companies make payments to financial intermediaries that provide shareholder and recordkeeping services for investors whose shares are held in omnibus and networked accounts maintained with mutual funds” and “…whether a portion of those payments are being used to finance distribution and therefore, if paid by a fund, must be paid pursuant to rule 12b-1…”
In summary, the staff appears to expect fund boards to take on a potentially greater role in the review of distribution fees, sub-accounting fees, and any other fee types associated with intermediaries that act on behalf of the funds. The fund board is expected to do this with the assistance of the adviser, distributor, transfer agent, and third-party intermediary by way of increased information flow, including transparency in discussing services provided, the cost of such services, and who is paying for what.
Some additional points of note from the guidance update:
Learn More About Distribution in Guise
If you'd like to learn more about Distribution in Guise, you can view our webcast on the subject here.
If you have questions about this alert, or would like more information about ACA Compliance Group, please contact Erik Olsen, Senior Principal Consultant, ACA Compliance Group, at (240) 997-9434, or Nick Prokos, Partner, ACA Compliance Group, at (561) 988-3310.