Large Fund Family Receives “Distribution-in-Guise” Wells Notice 

A large mutual fund complex disclosed in its annual report that the SEC has issued a Wells Notice for an enforcement proceeding relating to the payment of shareholder servicing fees.  According to the annual report, several of the funds have entered into an agreement to pay 0.15% (15 basis points) to the fund sponsor for providing shareholder administration services.  The issues arose from a 2013 SEC industry sweep regarding fund payments to intermediaries related to distribution (aka the “distribution-in-guise” sweep).  The sponsor has voluntarily waived receipt of the shareholder servicing fees “in light of the preliminary concerns expressed by the SEC.”  A Well Notice is a notice of the SEC staff’s intent to recommend an enforcement action.

OUR TAKE: This appears to be second the case brought under the SEC’s “distribution-in-guise” initiative, whereby the SEC scrutinizes payments to intermediaries.  (See http://blog2.cipperman.com/2015/09/fund-sponsor-to-pay-40-million-for-using-fund-assets-to-pay-for-distribution/.)  Funds that utilize such payments should re-examine their practices.

http://www.sec.gov/Archives/edgar/data/822632/000093041316005751/c83085_ncsr.htm