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Alert Update: SEC Mutual Fund Share Class Disclosures

Alert: SEC Proposes “Regulation Best Interest”
April 20, 2018
Regulators Offer More Guidance as AML Rules Near Effective Date
April 26, 2018

The SEC Division of Enforcement announced a “Share Class Select Disclosure Initiative” intended to protect and reimburse investors from an adviser’s conflict of interest. The SEC initiative offers an incentive to advisers and associated entities to self-report conflicts of interest that are in violation of Investment Advisers Act (12b-1) fiduciary duties regarding fees collected on mutual fund share classes, when lower-cost share classes of the same fund were available. The SEC initiative encourages the adviser to self-report the conflict and return the money to investors. If the advisor takes these actions, the Division of Enforcement will recommend that the Commission accept favorable settlement terms and not impose civil penalties that would otherwise have been imposed. Investment advisers that do not self-report and reimburse may face stronger sanctions.

Deadline is approaching quickly

The deadline to conduct this analysis, address these issues, and self-report is Tuesday, June 12, 2018 – which is only seven weeks away.

Bates’ Share Class Disclosure Plan: How we can help

To support advisers facing Share Class Select Disclosure issues, Bates has developed a roadmap and implementation plan that provides essential end-to-end steps and solutions to identify and address accounts and impacted mutual funds. We perform data analysis, examine regulatory reporting, review share class selection policies and disclosure practices, identify methodology and impacted accounts, perform calculations and provide remediation. Most important, after consultation with counsel, our roadmap culminates in a report that can be used directly with the SEC. Our plan includes back-end steps to clear exceptions, track client communications, and update written supervisory policies, procedures and compliance programs.

Time is running out to participate in this program.

Please contact Robert Lavigne, Managing Director, Bates Compliance Solutions, to discuss your share class selection policies and procedures and disclosure practices, and how Bates can help your firm take advantage of this SEC initiative.