Examiners with the Securities and Exchange Commission want to know if registered investment advisors are upholding their fiduciary obligations on the mutual funds they recommend to investors.
The Office of Compliance Inspections and Examinations issued a risk alert announcing its Share Class Initiative, which seeks to identify conflicts of interest in registered investment advisor investment recommendations.
Some share classes have "substantial" loads or distribution fees that advisors affiliated with a broker-dealer may have an incentive to recommend when less-expensive class options are available, according to the alert.
Recommended For You
In some cases, advisors and affiliate broker-dealers receive fees for the sale of certain share classes, the Office of Compliance Inspections says.
"As a fiduciary, an adviser has an obligation to act in its client's best interest and to disclose material conflicts of interest such as the receipt of compensation for selecting or recommending mutual fund share classes," the alert noted.
Examiners will focus on advisor practices and assess internal compliance and oversight programs.
More specifically, they plan to look under the hood of inspected advisors' books, and document which share classes clients are holding and any associate compensation that may have incentivized a conflict of interest.
They will also be reviewing firms' disclosure practices. Registered investment advisors are required to disclose any compensation on the sale of securities, including asset-based sales charges and service fees earned from the sale of mutual funds.
Registered investment advisors are also required to disclose the potential conflict of interest such recommendations potentially create in documents to clients and prospects.
The alert did not indicate how many registered investment advisors or firms would be examined, or when the examination period is scheduled to begin.
© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
