SEC Shakes Up Things for Advisers

July 22, 2010 ( – The Securities and Exchange Commission (SEC) has proposed two significant changes that may impact adviser/plan sponsor relationships.


Specifically, the SEC has proposed measures aimed at “improving the regulation of mutual fund distribution fees and providing better disclosure for investors” by replacing existing provisions, including Rule 12b-1, that allow mutual funds to use their assets to compensate securities professionals who sell shares of the fund. 

The proposal would limit the amount of asset-based sales charges that individual investors pay. A fact sheet said in particular, the proposal would restrict these “ongoing sales charges” to the highest fee charged by the fund for shares that have no ongoing sales charge. Separately, funds could continue to pay 0.25% per year out of their assets for distribution as “marketing and service” fees, for expenses such as advertising, sales compensation, and services. 

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Form ADV Changes

As if there wasn’t enough uncertainty swirling around the financial services industry at present, the Securities and Exchange Commission (SEC) wants to make changes to Form ADV, Part 2, the principal disclosure document that SEC-registered investment advisers must provide to their clients and prospective clients.

The brochure in its current format requires advisers to respond to a series of multiple-choice and fill-in-the-blank questions organized in a “check-the-box” format that the SEC says “frequently does not correspond well to an adviser’s business”. In some cases, the required disclosure may not describe the adviser’s business or conflicts in a way that is truly accessible to the investor, according to the SEC.  Of course the Form ADV, commonly referred to as the “brochure” is supposed to outline an investment adviser’s qualifications, investment strategies, and business practices. 

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