Fund managers and investment advisers should pay closer attention to their advisory fee and expense practices and how they disclose them to clients, the Securities and Exchange Commission said.
The SEC risk alert published April 12 identifies the most frequent advisory fee and expense compliance issues that have come up in 1,500 deficiency letters sent to SEC-registered investment advisers during the past two years by the SEC's office of compliance inspections and examinations.
The most frequent deficiencies OCIE staff identified concern advisory fees and expenses. They include basing fees on incorrect account valuations; billing fees in advance or with improper frequency; omitting rebates and applying discounts incorrectly; inconsistent or inadequate disclosure of advisory fees; and misallocated expenses such as distribution and marketing expenses, regulatory filing fees and travel expenses that should not be charged to clients.
The OCIE staff has observed some advisers changing practices or enhancing procedures as a result of those letters, and even reimbursing clients by the overbilled amount of advisory fees and expenses, the SEC said.
Details on the commonly noticed deficiencies are available in the risk alert.