“You are what you do, not what you say you will do.” – C.G. Jung
On April 12, the SEC�s Office of Compliance Inspections and Examinations (OCIE) released a Risk Alert identifying the most common fee and expense deficiencies observed by the SEC exam staff over the last two years. This alert doesn�t provide new guidance, but instead encourages advisers to examine their own fee and expense disclosures and practices. Advisers should perk up their ears at this news � in its recent Exam Priorities, the SEC pointed to Risk Alerts as a valuable tool to help firms better identify deficient practices. Risk Alerts are a chance to find and address issues before the SEC comes to your door.
So what are the most common deficiencies? No surprises here:
The key to remember here is that these deficiencies are not necessarily based on practices that the SEC finds problematic. Instead, they are based on failures of the adviser to act in accordance with their own agreements and disclosures.
- Fee-Billing Based on Incorrect Account Valuations
- Billing Fees in Advance or with Improper Frequency
- Applying Incorrect Fee Rates
- Omitting Rebates and Applying Discounts Incorrectly
- Disclosure Issues
- Adviser Expense Misallocations
What is the next step? Review your advisory agreements, ADV disclosures and compliance policies and procedures that detail your practices around fees and expenses, especially in areas called out in the Risk Alert. Make sure that your practices follow your agreements and disclosures to the letter. Reimburse clients for overbilled fees and expenses if any are found. Consider implementing policies and procedures that provide for periodic testing of billing and expense practices.
As always, let us know if you have any questions or if we can be of any assistance, please contact Laura Rauman at 414-935-6361 or firstname.lastname@example.org.
Resources: April 2018 Risk Alert