Compliance Newsflash – April 4, 2018

April 4, 2018

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SEC Offers “Favorable Terms” to Advisers that Self-Report Failure to Disclose Receipt of 12b-1 Fees
On February 12, 2018, the SEC Division of Enforcement announced a new self-reporting initiative – the Share Class Selection Disclosure (the “SCSD Initiative”).  The Initiative, led by the Commission’s Asset Management Unit, is designed to encourage advisers to self-report failure to disclose the receipt of 12b-1 fees from clients, and to promptly return money to harmed clients. In return for turning themselves in, the Enforcement Division has agreed to recommend “favorable settlement terms”, such as foregoing financial penalties.  The offer is good until June 12, 2018, and is available to advisers that meet the certain conditions (discussed later in this article).  Firms that have already been contacted by the SEC’s Enforcement Division about possible violations for failure to disclose conflicts of interest associated with mutual fund share class selection are not eligible to take advantage of this initiative.
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After Ruling, Fiduciary Rule Focus Shifts to SEC
With the Department of Labor fiduciary rule facing a May expiration date after being invalidated by a court order, the focus now shifts to the Securities and Exchange Commission and a few states considering ways to fill the void.  “I think every option is under review. For plan sponsors and individual investors, the SEC could really come out with a very good, real fiduciary rule if they wanted to,” said Kathleen M. McBride, a founder of the Rumson, N.J.-based Committee for the Fiduciary Standard – an advocacy group for the authentic fiduciary standard as established under the Investment Advisers Act of 1940 – and an accredited investment fiduciary analyst.
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