The Securities and Exchange Commission plans to launch by year-end a “Share Class Initiative” to examine advisors’ commissions in connection with recommending share classes that charge investors 12b-1 fees, and the agency is knee-deep in assessing the “scope” of potential third-party advisor audits, agency executives said Tuesday.
Jane Jarcho, national director of investment advisor exams, who was also recently named deputy director of the agency’s Office of Compliance Inspections and Examinations, noted at the SEC’s investment advisor/investment company compliance outreach summit the recent actions the agency has taken on 12b-1 fees.
One was against three AIG affiliates — which agreed to pay $9.5 million to the SEC — for placing clients in share classes that charged fees for marketing and distribution even though the clients were eligible to buy shares in an institutional share class that did not charge 12b-1 fees.
“We will continue to look at this; this is a really important area,” Jarcho said.
Diane Blizzard, associate director of the SEC’s Division of Investment Management, said that the IM division is “still developing” a third-party advisor audit proposal, which would be designed to provide “additional touches” alongside SEC exams.
Such additional information about advisors’ businesses would help inform OCIE’s “risk-based” exam approach, she said, adding that IM is still assessing the “scope” of such exams, which “will drive the questions about cost, standards and SEC oversight” of the third-party audit process.
“There’s an awful lot to work out when it comes to this proposal,” Blizzard said.
Jarcho agreed that “a lot of thinking [about] getting the scope [of such audits] right is being put into this proposal; There’s a lot of discussion on what the ‘scope’ should be.”
Jarcho added that while SEC Chairwoman Mary Jo White has stated that using third-party audits to boost the number of advisor exams is not her “first choice,” developing such a proposal is “a priority of White’s and a lot of effort is being placed on this” at the agency.