The long awaited result of the SEC’s distribution in guise sweeps hit today; you can find the link here. Many of the points covered were expected, and most of the requirements for compliance identified are currently supported by the Oversight platform Delta Data actually developed in anticipation of this guidance. Here is the overarching theme in this news: the 12b1 plan represents the only funds that can be used for distribution expense, and anything that promotes sales in any way, whether direct or indirect, must be allocated as an expense to the advisor and/or other relevant service providers, not the fund. Fees related to distribution in excess of the 12b1 plan must be allocated to the advisor and/or other relevant service providers.
The three major points made by the SEC were clearly articulated:
1) Required: Mutual Fund Boards will be required to have a process in place to evaluate fees and the corresponding services provided, if they don’t already have one in place.
2) Transparency: Mutual Fund advisers, and other relevant service providers, must provide sufficient information to inform the Board of the overall services provided and fees charged, so that they can properly EVALUATE the expenses of the fund.
3) Proactive nature: The SEC takes the stance that advisers and other service providers inform the board of the existence, or potential existence, of certain activities or arrangements that are distribution related Sub-TA fees.
What we were not expecting:
Ability to ask for relevant information: Our view is that this document states: Mutual fund boards must have processes in place to reasonably evaluate fees and services, and may ask for transparency information, if they are not comfortable that it is clear they have completed their duty under the guidance. This move indicates the SEC is empowering fund boards to ask for greater transparency along the entire financial distribution chain, and receive it.
The SEC went out of their way to remove any chance of missed accountability, and further stated that advisers, and “other service providers”, must proactively notify boards if a potential exists for distribution related fees in connection with Sub-TA fees.
Whitfield Athey, CEO of Delta Data Software, is available for additional commentary on this matter. Please contact Steve Lundin at (312) 391-8007 or email@example.com to book time with Mr. Athey.
Delta Data provides the back-end solutions that companies in the mutual fund industry use to process billions of dollars of transactions and keep on top of their data.www.deltadatasoft.com
Whitfield Athey is CEO of Delta Data Software. His role at Delta Data is focused on growth of the product base, satisfaction of clients and scalability of the organization.