Bates Research | 09-09-16
The SEC and NASAA Focus on Improving Fee Disclosures
Guest Post by Expert Geoff Winkler
There has been a significant amount of discussion about the fees and expenses charged by financial advisors as part of the Department of Labor’s new fiduciary standard, which we have previously discussed at length on this blog. However, regulators are now beginning to turn their focus to how these fees and expenses are being disclosed.
According to the Investment Company Institute’s 2016 Fact Book, U.S. registered investment companies, including open-end mutual funds, exchange traded funds, closed-end funds and unit investment trusts, managed over 18 trillion dollars in assets for more than 93 million Americans at the end of 2015.
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Investment Company Institute 2013, 2014, 2015 and 2016 Fact Books
Securities and Exchange Commission (“SEC”) investor advocate Rick A. Fleming intends to make improved disclosure a focus for his office during the 2017 fiscal year, which begins in October. In order to best determine how to improve disclosure, Mr. Fleming intends to be actively involved in the investor testing recommended by the SEC Investor Advisory Committee’s (“IAC”) April 2016 report. In this report, the IAC encouraged the SEC to “test various approaches to determine which are the most effective in informing investors of the costs of their own funds, or funds they may be considering purchasing, and the long-term impact of those costs.”
The North American Securities Administrators Association (“NASAA”) has also been actively involved in improving disclosure of fees and expenses, including two surveys performed in 2014 and 2015. The result of these surveys indicated that, although most firms comply with fee disclosure requirements, “customers would benefit from greater consistency and transparency in the disclosure of fees.” Based on these findings, NASAA has made standardized disclosure of fees part of their legislative agenda to “promote a fair and transparent marketplace for retail investors.”
A key part of this agenda is the model fee disclosure schedule, which was created by a joint working group convened by NASAA following the release of NASAA’s 2014 surveys. The working group consists of state regulators, the Financial Industry Regulatory Authority (FINRA), the Securities Industry and Financial Markets Association (SIFMA), the Financial Services Institute (FSI), and financial services firms LPL Financial LLC, Morgan Stanley Smith Barney LLC, Prospera Financial Services and Signator Investors, Inc., which have all adopted the model fee disclosures.
For more background, visit the NASAA Model Resource Center