SEC Staff Issues Guidance on Fund Fee Structure Disclosures

December 22, 2016

In a Guidance Update published on December 15, 2016, the staff of the U.S. Securities and Exchange Commission’s (SEC) Division of Investment Management (Staff) articulated its views as to certain disclosure issues and procedural requirements with which many fund companies are currently grappling in connection with responding to intermediaries’ requests relating to share classes. As described in a recent Dechert OnPoint, Mutual Fund Sales by Intermediaries – Fall-Out from DOL Fiduciary Rule and FINRA Enforcement, fund intermediaries are evaluating possible requests for changes to mutual fund sales loads and share class structures in the wake of the U.S. Department of Labor’s “investment advice” regulation (Fiduciary Rule) adopted earlier this year.

The corresponding proposals from fund intermediaries raise a variety of issues for fund companies, including the potential for intermediary-specific disclosures in fund prospectuses and/or statements of additional information (SAIs) with respect to variations in sales loads as well as the possible creation of new share classes. Our prior OnPoint noted that the Staff could consider issuing a Guidance Update with respect to disclosure and other matters involving these proposals as an alternative (or in addition) to formal SEC rulemaking or a Staff no-action letter.

Although the Guidance Update clarifies the Staff’s views on certain matters implicated by intermediary proposals for new share classes and share class structures, it leaves certain questions unresolved and may not offer sufficient flexibility for funds to react in a timely manner to intermediary proposals (which may continue to evolve). This OnPoint summarizes the Guidance Update and certain of its practical implications.

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