The latest SEC Risk Alert shows that conflicts of interest remain a top examination focus area. Amy Lynch, FrontLine’s Founder and President, states that this particular Risk Alert is very specific regarding economic conflicts around adviser compensation. SEC examiners found that adviser fees were inconsistent with advisory agreements and/or disclosures, the disclosures were misleading or omitted material information, and that compliance programs did not fully address economic conflicts that were present. Ms. Lynch highlights the Risk Alert’s focus on Form ADV compensation-related disclosures regarding revenue sharing and the use of the word “may.” She explains that the SEC staff want to see revenue sharing activities disclosed as they actually occur, not how they may occur. Another issue raised by the Risk Alert, adds Ms. Lynch, was the mutual fund share class issue from the 12b-1 sweeps of several years ago. The SEC raised concerns where advisers offer clients share classes that benefit the adviser without disclosures on the availability of other mutual fund share classes. See ThinkAdvisor (free registration), “SEC Warns Advisors on Conflicts in Cash Management, Fees”
Also see our ComplianceAlert, “New SEC Risk Alert on Adviser Conflicts of Interest”
