More On Legal & Compliancefrom The Advisor's Professional Library
- Client Communication and Miscommunication RIA policies and procedures must specify what type of communications should be retained. The safest course of action is for RIAs to retain all communicationsto clients, from clients, and about client accounts. To comply with fiduciary obligations, communications must be thorough and not mislead.
- Client Commission Practices and Soft Dollars RIAs should always evaluate whether the products and services they receive from broker-dealers are appropriate. The SEC suggested that an RIAs failure to stay within the scope of the Section 28(e) safe harbor may violate the advisors fiduciary duty to clients, so RIAs must evaluate their soft dollar relationships on a regular basis to ensure they are disclosed properly and that they do not negatively impact the best execution of clients transactions.
The Securities and Exchange Commission will begin next week an exam sweep of mutual funds' distribution fees—12b-1, Sub Transfer Agent, revenue sharing and conference fees—and later this year, a sweep of alternative mutual funds, Andrew Bowden, deputy director of the SEC's Office of Compliance Inspections and Examinations, said Friday.
Speaking at the Investment Adviser Association's compliance conference in Arlington, Va., just outside Washington, Bowden said that with this targeted sweep of funds’ distribution fees, the agency would assess the amount of these payments, the services provided under them and "the interaction of the service agreements."
Bowden told reporters after his remarks that he wasn't sure whether the distribution fees sweep would help revive a 12b-1 rule that has languished at the agency for years.
The SEC listed examining more closely funds' distribution fees under its top exam priorities for 2013, calling it "payments for distribution in guise."
The regulator said it would assess "whether such payments are made in compliance with regulations, including Investment Company Act Rule 12b-1, or whether they are instead payments for distribution and preferential treatment."
Later this year, the agency will begin a sweep of alternative mutual funds to better understand the “trends and whether the current regulatory construct is operating the best way that it can,” Bowden said.
"The industry, as well as investor money, is moving” more and more toward using alternative mutual funds, and while some of the strategies “may have been good in the private fund format,” the SEC wants to find out whether “they work in the open end ’40 Act fund format,” he said.
As it stands now alternative mutual funds hold about $200 billion in assets, with about 100 opening up since 2008, Bowden said.
The SEC also “wants to make sure the valuation issues are appropriately addressed" in these alternative funds, Bowden said, "as well as the liquidity issues.”