SEC Staff Clarifies Application of 1940 Act Section 22(d) to Brokers Selling Clean Shares of Mutual Funds

January 26, 2017

In response to a request for interpretative guidance, the U.S. Securities and Exchange Commission staff (staff) advised on January 11, 2017 that Section 22(d) of the Investment Company Act of 1940 does not prevent a broker acting in an agency capacity from charging its customers a commission for transacting in “Clean Shares” of a registered investment company (fund). The request, by Capital Group Companies, Inc. (Capital Group), used the term Clean Shares to refer to a class of fund shares without any front-end load, deferred sales charge or other asset-based fee for sales or distribution.

The staff also advised that Section 22(d) would not prohibit a principal underwriter of Clean Shares from entering into a selling agreement with a broker under the circumstances described in the Capital Group Letter. In providing this interpretive guidance, the staff noted recent changes in fund sales and brokerage models due, at least in part, to the Department of Labor (DOL) fiduciary rule.

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