Last week, the SEC announced a “Share Class Selection Disclosure Initiative” being led by the Asset Management Unit of the Division of Enforcement. This initiative warrants close examination for investment advisers who regularly recommend different mutual fund share classes for their clients and by their affiliated broker-dealers. This effort continues the SEC’s focus on 12b-1 fees, and provides the SEC with a vehicle to efficiently bring enforcement actions against those firms who have failed to properly disclose conflicts related to those fees. FINRA has not yet issued any related, formal pronouncements. Until FINRA issues guidance, affiliated broker-dealers concerned with how to handle any 12b-1 fee issues that they may have will need to consider FINRA’s “extraordinary cooperation” guidance.
While the SEC is attempting to encourage self-reporting, firms need to give serious analysis to the various issues and risks of self-reporting. With this blog, we submit the recent Drinker Biddle client alert that summarizes this initiative, provides strategies and guidance for firms to consider, and provides an overview of the settlement parameters and the charges that the SEC plans to seek pursuant to this initiative.