SEC Takes a Look at Fee Transparency

SEC Takes a Look at Fee Transparency

The Securities and Exchange Commission recently released its priorities for 2018, with plans to pay closer attention to the fees paid by retail investors as well how those fees are disclosed and calculated.

The focus will be on how consistent disclosures are with the fees and expenses actually being charged.

According to the SEC, “every dollar an investor pays in fees and expenses is a dollar not invested for his or her benefit.” The SEC also noted that they will focus on firms with business models or practices that create a higher risk that investors will pay poorly disclosed fees, expenses or other charges. Conflicts of interest will also be a point of focus.

Historically, the SEC has prioritized fee disclosure, but often discussed the issue in terms of share class. Now, the regulator is going to be creating new standards that will put pressure on advisors to choose the least expensive products that will achieve an investor’s objective. While investment performance is obviously important, looking for performance at a reasonable price can be seen as part of fiduciary responsibility. And when there could be a conflict of interest, such as when an advisor recommends a fund with a higher expense ratio in order to receive a benefit from the fund provider, that conflict must be disclosed.

Sometimes, advisors are guilty of not understanding how fees and expenses are calculated by the portfolio management system or the custodian. For example, the advisor may not know if interest, cash balances or dividends are included when fees are calculated.  The SEC will also be looking at issues such as cybersecurity, robo advisors, and wrap fee programs.

For more on what the SEC might get up to, please visit
Fee Transparency on SEC’s 2018 Hit List | Wealth Management

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