SEC Staff Publishes its Views on Oversight of Certain Payments to Financial Intermediaries

February 12, 2016

The staff of the U.S. Securities and Exchange Commission (SEC) Division of Investment Management (Staff) published a Guidance Update on January 6, 2016 related to mutual fund distribution and sub-accounting fees. In the Guidance Update, the Staff articulates its views regarding potential issues implicated by open-end investment companies registered under the Investment Company Act of 1940 (funds) paying fees to financial intermediaries for furnishing shareholder and recordkeeping services (sub-accounting fees) to omnibus and networked shareholder accounts.

The Guidance Update provides several Staff recommendations with respect to the oversight responsibilities of a fund’s board of trustees (board) – as well as related information to be provided periodically to the board – in connection with its consideration of whether a portion of sub-accounting fees are for services primarily intended to result in the sale of fund shares (distribution or distribution-related activity). The Staff’s focus on these board oversight and reporting matters stems from the Investment Company Act’s prohibition, pursuant to Section 12(b) and Rule 12b-1 thereunder, against the use of a fund’s assets to pay distribution-related expenses other than in accordance with a plan of distribution meeting the requirements of Rule 12b-1 (a 12b-1 Plan).

Read "SEC Staff Publishes its Views on Oversight of Certain Payments to Financial Intermediaries."