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Day: March 13, 2019

Share Class Disclosure Initiative Ensnares 79 Firms for $125 Million

The SEC announced 79 settled enforcement cases whereby investment advisers agreed to disgorge more than $125 Million in the aggregate for recommending higher-cost mutual fund share classes and receiving revenue sharing.   The cases arose from last year’s Share Class Disclosure Initiative launched, which encouraged firms to self-report to avoid penalties.  The SEC charges that the firms recommended mutual fund share classes that were more costly than other available classes so that the firms or their personnel could receive 12b-1 fees in their capacities as broker-dealers or registered representatives thereof.  Each charged firm “has also undertaken to review and correct all relevant disclosure documents concerning mutual fund share class selection and 12b-1 fees and to evaluate whether existing clients should be moved to an available lower-cost share class and move clients, as necessary.”

Firms that take revenue sharing from fund companies should consult counsel about their self-reporting options.  Also, whether or not your firm self-reports, you should undertake the review of all relevant disclosure that the SEC has mandated.