Seward & Kissel briefing: SEC issues guidance on the potential application of Rule 12b-1 to certain sub-accounting fee arrangements
Seward & Kissel’s memorandum examines recent guidance issued by SEC on the potential application of Rule 12b-1 to certain sub-accounting fee arrangements under the Investment Company Act 1940.
On 13 January 2016, Seward & Kissel published a memorandum following publication of the Securities and Exchange Commission (SEC) guidance on payment of sub-accounting fees by mutual funds to broker-dealers and other financial intermediaries. These may raise issues if the payments are made outside of Rule 12b-1 of the Investment Company Act of 1940.
The SEC focuses on whether a portion of such sub-accounting fees paid by the fund is, in fact, for distribution-related services (and, therefore, must be made pursuant to a Rule 12b-1 plan) - the ultimate responsibility for this determination lies with the mutual fund's board of directors.
The SEC guidance provides a number of recommendations, including suggesting both (a) a process by which the directors can oversee payment of sub-accounting fees and related distribution issues and (b) improvements to the type of information the board receives from the mutual fund's adviser and financial intermediaries regarding the nature of the services provided by the intermediaries.
