Less than six months from now, advisors registered in Massachusetts will be required to provide clients and prospective clients a one-page standalone table for fees for services, which must also be easily accessible on the advisor’s website if he or she has one.
The fee table “is intended to supplement, not replace, a more detailed disclosure of fees and services“ contained in Form ADV Part 1A and Part 2 (“The Brochure”) that advisors are required to file to register with the Securities and Exchange Commission and state securities regulators, according to final rule amendments published by the Massachusetts Securities Division on June 19. The fee table is set to take effect on Jan. 1, 2020.
The Massachusetts Securities Division had proposed the fee table in early April, in the form of amendments to its securities regulations for financial advisors, and issued the final amendments after reviewing those comments, making few changes from its proposal.
“The Division believes that requiring investment advisers to distill this information into a simple, easy-to-read Fee Table will ultimately benefit investors by increasing awareness and encouraging discussion with their advisers,” read the amendments. They note that the current Form ADV Part 2 is often “difficult for many investors to understand” and left unread, leaving many not knowing where to find fee information in account statements, contracts or the Brochure. A typical ADV Part 2 can run twenty pages or more.
“The Fee Table is intended to distill and present information about the investment adviser’s fees and services in a more visually accessible formant than the often dense narrative found in the Brochure.” Its one-page is also more concise than the disclosures found in the SEC’s new four-page Customer Relationship Summary (CRS) that the SEC is requiring along with its Best Interest Standard for broker/dealers and financial advisors, according to the Massachusetts Securities Division.
Dissatisfaction with the SEC Regulation Best Interest led the division, headed by William Galvin, to propose its own state fiduciary rule.
The Massachusetts fee table consists of four parts, according to a template. In addition to a firm’s name, logo, document title and preamble at the beginning and date of the latest fee form of the filing at the end are the actual fee table and a discussion box.
Advisors are required to list the types of fees — hourly, fixed, commissions, subscriptions and based on assets under management — the amount and frequency of each and the service they relate to such as financial planning, portfolio management, etc. Fees charged by third parties such as money management fees and robo-advisor fees should also be included.
The discussion box is designed to prompt clients and prospective clients to ask about any additional costs and fees that they could incur as a result of an advisor’s recommendations or services, including brokerage fees, commissions, custodian fees, markups and mutual fund and ETF fees and expenses. The advisor would check Yes or No for each and identify the third party that would receive the payment.