The SEC wants advisory firms that didn’t disclose their receipt of 12b-1 fees to come clean.
On Monday, the agency’s enforcement division announced a program under which RIA firms that self-report disclosure violations and make restitution to clients will not face financial penalties.
The program, called the Share Class Selection Disclosure Initiative (SCSD Initiative), covers advisory firms that failed to disclose conflicts of interest “associated with the receipt of 12b-1 fees by the adviser, its affiliates, or its supervised persons for investing advisory clients in a 12b-1 fee paying share class when a lower-cost share class of the same mutual fund was available for the advisory clients,” the SEC said in a release.
Advisory firms that did not “explicitly disclose” this conflict in their ADVs should consider taking advantage of the initiative, the SEC’s enforcement unit said in a detailed announcement of the program.
Investment advisors who want to self-report must notify the SEC’s division of enforcement by June 12, 2018.
The SCSD Initiative does not concern cases where one share class is more expensive than another but where neither share class pays a 12b-1 fee, or where the advisor has no financial conflict of interest, the enforcement division said.
SEC enforcers expect to “recommend stronger sanctions in any future actions against investment advisers that engaged in the misconduct but failed to take advantage of this initiative,” the agency said.
In the past several years, the SEC has brought cases against nine firms over failure to disclose conflicts around the receipt of 12b-1 fees. Four of those cases were brought last year.