Compliance and Regulatory Alerts - 05-02-18

Update: SEC Releases Share Class Selection Disclosure Initiative FAQs

Update: SEC Releases Share Class Selection Disclosure Initiative FAQs

The SEC Division of Enforcement issued guidance in the form of Frequently Asked Questions (FAQs) on its Share Class Selection Disclosure Initiative (SCDI). The SCDI “seeks to protect advisory clients from, and return money to, those affected by undisclosed conflicts of interest.” 

Bates Group has closely monitored and reported on SCDI developments (see here and here) ahead of the June 12, 2018 deadline for advisers to conduct a self-analysis, address any issues, and self-report. The FAQs, released May 1st, provide detailed answers on questions raised by the initiative, including adviser eligibility and the distribution of funds to clients. 

Upon close review of the FAQs, Bates recommends the following:

  1. Registered Investment Advisors (“RIAs”) should continue to work with counsel to determine if they will self-report by the deadline.
  2. Firms may need to review their methodology for identification and inclusion of funds based on the FAQs, including reviewing fund prospectuses.
  3. Firms should review their billing practices to identify areas where offsets to 12b-1 fees have been provided and/or memorialized.
  4. RIAs should follow up on the needs that occasioned self-reporting, including the development of new policies and procedures, product selection, client and regulatory disclosures, and supervisory and compliance updates.

BATES’ SHARE CLASS DISCLOSURE PLAN: HOW WE CAN HELP

To support advisers facing Share Class Selection Disclosure issues, Bates has developed a roadmap and implementation plan that provides essential end-to-end steps and solutions to identify and address accounts and impacted mutual funds. We perform data analysis, examine regulatory reporting, review share class selection policies and disclosure practices, identify methodology and impacted accounts, perform calculations and provide remediation. Most important, after consultation with counsel, our roadmap culminates in a report that can be used directly with the SEC. Our plan includes back-end steps to clear exceptions, track client communications, and update written supervisory policies, procedures and compliance programs.

TIME IS RUNNING OUT TO PARTICIPATE IN THIS PROGRAM

Please contact Robert Lavigne, Managing Director, Bates Compliance Solutions, to discuss your share class selection policies and procedures and disclosure practices, and how Bates can help your firm take advantage of this SEC initiative.

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Direct: 508-868-6741

Email: rlavigne@batesgroup.com

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