The Securities and Exchange Commission has released guidance to help mutual funds streamline the process of offering certain fee structures that are designed to achieve level compensation consistent with the Department of Labor’s fiduciary rule, which takes effect on April 10.
The seven-page guidance, issued by the Division of Investment Management in December, focuses on disclosure issues and certain procedural requirements with offering variations in mutual fund sales loads and new fund share classes.
David Blass, general counsel at the Investment Company Institute in Washington, told ThinkAdvisor in a Tuesday email that the SEC “will receive a large number of share class filings from funds offering variations in fund sales loads or new fund share classes in connection with the implementation of the DOL fiduciary rule.”
The SEC guidance “should help streamline that process, and it answers some open interpretive questions,” Blass said.
The SEC guidance explains that in light of DOL’s rule, funds have been contemplating certain changes to fund fee structures that would, in certain instances, level the compensation provided to a financial intermediary for the sale of fund shares by that intermediary and facilitate intermediaries’ compliance with the rule.
Funds have told the SEC that they are considering new variations to sales loads that would apply uniformly to investors that purchase fund shares through a single intermediary (or category of multiple intermediaries).
The guidance counsels that under these circumstances, a prospectus must: briefly describe the arrangements that result in breakpoints in, or elimination of, sales loads; identify each class of individuals or transactions to which the arrangements apply; and state each different breakpoint as a percentage of both the offering price and net amount invested.