Fund Sponsor Exceeded Expense Caps by Recouping Fee Waiver
A fund sponsor agreed to reimburse investors nearly $6 Million for exceeding its expense caps when it recaptured previously waived fees. The funds benefited from both contractual expense caps and voluntary fee waivers. When the fund manager recouped some of the voluntarily waived fees, the funds exceeded their contractual expense caps. The respondent also failed to include the recoupment in the fee table required in the prospectus, thereby misleading investors about total expenses. The respondent self-reported the violation, thereby avoiding any civil penalty.
Although the SEC charged compliance and disclosure violations, efforts to recoup previous fee waivers always raise questions about fiduciary duty because it puts the fund manager’s financial interest ahead of shareholders. Even if the voluntary waiver allows future recoupment, we recommend that the manager avoid the conflict of interest and leave the money for investors.