Fund Adviser and Sub-Adviser Can Re-Allocate Fees without Shareholder Approval
The staff of the SEC’s Division of Investment Management has granted no-action relief to allow a mutual fund adviser and sub-adviser to amend their fee structure without shareholder approval so long as the aggregate fees paid by the fund do not change. The adviser and sub-adviser wanted to change the fees so that the calculation of sub-advisory fees would not include a deduction for allocable fund expenses, thereby increasing sub-advisory fees but decreasing advisory fees. Such a change would require shareholder approval under Section 15(a) of the Investment Company Act. The no-action relief allowed the parties to alter the fee structure so long as the aggregate fee did not change, the Board approved, and shareholders had adequate notice.
OUR TAKE: This no action relief is consistent with recent guidance offered by the staff (See http://blog2.cipperman.com/2014/03/shareholder-vote-not-required-if-fees-dont-change-in-multi-manager-structures/). Interestingly, Norm Champ recently questioned the adviser/sub-adviser fee split in a recent speech (See http://blog2.cipperman.com/2014/07/director-of-investment-management-targets-advisersub-adviser-fee-splits/). We wonder whether there would have been a different answer had the reallocation benefitted the adviser rather than the sub-adviser.