Financial advisors registered with the Securities and Exchange Commission should expect continued scrutiny from regulators in the wake of a self-reporting initiative that brought 79 settlements with advisors and returned more than $125 million to investors.
The SEC’s Share Class Selection Disclosure Initiative, launched in early 2018, gave advisory firms four months to self-report failures to adequately disclose 12b-1 fees and recommendations of higher cost share classes when lower cost shares of the same investments were available.
In some cases, firms that did not self-disclose during the first initiative are already receiving document requests from the SEC.
Future investigations may not fall directly under the SCSD initiative, but will be an offspring of the initiative, according to James Lundy, a partner with Drinker, Biddle & Reath.
“There’s an expansive effort by the SEC’s enforcement division pertaining to revenue sharing,” Lund said in a recent webinar hosted by the firm.
“There will be more to come,” he said of the agency’s investigations of how RIAs are capturing 12b-1 fees, and whether they are fully disclosing all conflicts of interest on their Form ADV. “The asset management unit that led this initiative has been emboldened.”
Attorneys for the firm advise revising ADV and other client disclosure forms to include specific language on all revenue arrangements with mutual fund companies or custodians that would qualify as a conflict of interest.