On January 6, 2016, the SEC's Division of Investment Management published regulatory guidance and tackled the issue of how mutual funds, their investment advisers and independent fund directors should evaluate arrangements involving mutual fund distribution and fees paid for services related to sub-transfer agent, administrative, sub-accounting and other shareholder servicing fees (referred to as "sub-accounting fees" by the Division's staff).
The Division's staff urges fund boards to establish a robust process for evaluating and approving sub-accounting arrangements, and to ensure that funds establish compliance policies and procedures for reviewing and identifying any payments that are made for distribution-related services and that are not paid by a Rule 12b-1 distribution plan.
In the guidance, the staff hones in on the issue of whether payments of fees to intermediaries that are not characterized as distribution fees raise questions of whether some or all of those fees "are being used to pay for activities that are primarily intended to result in the sale of mutual fund shares." This is commonly referred to as "distribution in guise."
For additional discussion and analysis, our Client Alert is available here.
Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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