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SEC Issues Guidance on Mutual Fund Fee Structure

The Securities and Exchange Commission’s (SEC) Division of Investment Management recently issued a guidance update addressing disclosure issues and certain procedural requirements with offering variations in mutual funds sales loads and new funds share classes. In the guidance, the Division’s staff also discusses certain administrative procedures that will assist in streamlining the review of disclosure filings.

SEC’s Division of Investment Management Letter Regarding Brokers Setting Their Own Commissions for Selling "Clean Shares"

The Securities and Exchange Commission’s (SEC) Division of Investment Management has issued a no-action letter stating that the restrictions of Section 22(d) of the Investment Company Act (the 1940 Act) do not apply to a broker when the broker acts as agent on behalf of its customers and charges its customers commissions for effecting transactions in mutual fund shares that do not provide any form of distribution-related payment to the broker. This means that brokers can determine their own commissions to charge when selling mutual fund shares—provided that such shares do not have any front-end load, deferred sales charge, or other asset-based fee that compensates financial intermediaries (including brokers) for sales or distribution activities. These types of mutual fund shares, which do not have built-in fees that ultimately provide compensation to the brokers who sell them, are called clean shares.

SEC and FINRA Examination Priorities for 2017

The Securities and Exchange Commission (SEC) has announced its Office of Compliance Inspections and Examinations (OCIE) priorities for 2017. The Financial Industry Regulatory Authority (FINRA) has also published its examination priorities for 2017.

Multi-Branch Adviser Initiative

The Office of Compliance Inspections and Examinations (OCIE) has published a Risk Alert in which it stated that OCIE intends to focus on investment advisers that provide advisory services from multiple locations. Such examinations will focus on evaluating the design and effectiveness of advisers’ compliance programs with respect to their oversight of advisory services provided at remote locations. This is a continuation of an initiative that OCIE had included in its 2016 examination priorities. In the course of such exams, OCIE will be looking at risks presented in the branch office model regarding the provision of advisory services to clients, such as the identification of potential conflicts of interest, and the level of autonomy supervised persons have in providing advice.

Pending SEC Leadership Change

President-elect Donald Trump has announced that he nominated Jay Clayton to serve as Chair of the Securities and Exchange Commission (SEC), subject to confirmation by the U.S. Senate. Mr. Clayton is a partner at Sullivan & Cromwell. His practice has included representing Wall Street firms as well as other large companies in mergers and acquisitions and capital markets activities. If confirmed, Mr. Clayton will succeed the outgoing Chair Mary Jo White. Unlike Chair White, a former prosecutor, Mr. Clayton has dedicated a substantial portion of his career to representing financial firms. Some commenters have observed that this potential change in leadership portends a shift in the SEC’s priorities—away from what some have described as particularly "zealous" enforcement activities under the leadership of Chair White.

To learn more about these developments and other investment management news, please contact a member of the Ballard Spahr Investment Management Group or the attorney with whom you regularly work.


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