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Regulation and Compliance > Federal Regulation > SEC

SEC to Release FAQ on Share Class Selection Disclosure Initiative

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The Securities and Exchange Commission plans to publish “in the coming days” frequently asked questions guidance on its Share Class Selection Disclosure Initiative, Stephanie Avakian, co-director of the agency’s enforcement division, said Thursday.

“We have received a number of questions” about the voluntary program, Avakian said at the SEC’s 2018 National Compliance Outreach Seminar for advisors and investment companies, at the agency’s headquarters in Washington.

The deadline for firms to self-report share class violations is June 12, Avakian reminded compliance officers.

One question, for instance, involves exams performed by the SEC’s Office of Compliance Inspections and Examinations. “We’ve been asked if this [Share Class Disclosure issue] is raised in the context of an OCIE exam, do you still need to self-report?” Avakian said Thursday. The answer: “Yes, you do need to self-report as a precondition to eligibility for the program, and you do need to do it by June 12.”

Under the initiative, announced Feb. 12, the agency’s Investment Management Division said that it will recommend “standardized, favorable settlement terms to advisors that self-report that they failed to disclose conflicts of interest associated with the receipt of 12b-1 fees by the advisor, its affiliates, or its supervised persons for investing advisory clients in a 12b-1 fee paying share class when a lower-cost share class of the same mutual fund was available for the advisory clients.”

Steven Peikin, co-director of the Enforcement Division, said in late February that investment advisors putting their clients into higher-fee share classes when lower-cost ones are available “is a widespread problem.”

On April 6, the SEC said that three investment advisory firms — PNC Investments, Securities America and Geneos Wealth Management — agreed to collectively pay nearly $15 million for failing to disclose conflicts and putting clients into higher-cost mutual fund shares. More than $12 million will go to harmed clients.

Ameriprise Financial Services agreed on Feb. 28 to settle charges that it recommended and sold higher-fee mutual fund shares to retail retirement account customers and failed to provide sales charge waivers.

Approximately 1,791 customer accounts paid more than $1.7 million in unnecessary upfront sales charges, contingent deferred sales charges, and higher ongoing fees and expenses as a result of Ameriprise’s practices.

— Check out Advisors Should Act Now on the Rule 12b-1 Initiative on ThinkAdvisor.


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