The SEC’s Division of Examinations Published Their Observations Regarding IA’s Fee Calculations

November 11th | 2021

The SEC’s Division of Examinations (the “Division”) has published their observations regarding Investment Advisers’ Fee Calculations. The Division highlights the importance of these observations as “…every dollar an investor pays in fees and expenses is a dollar not invested for the investor’s benefit.” These observations come after the Division concluded a national initiative that focused on advisory fees, including 130 examinations of SEC registered investment advisers and their advisory fees charged. In addition to reviewing the effectiveness of the advisers’ compliance programs, the Divisions’ reviews centered on the accuracy of; fees charged, books and records, and the advisers’ disclosures.

Through their reviews, the Division has published what they found as “Notable Deficient Practices.” These practices include:

• Inaccurate charging of advisory fees;
• Improper refunding of prepaid fees on terminated accounts;
• Not assessing fees for new accounts on a pro-rata basis;
• Inaccurate disclosures of current fees;
• Inaccurate disclosure of ability to negotiate fees;
• Inaccurate disclosure of calculation of fees;
• Inconsistent statements across advisory documents;
• Improperly maintained policies for billing and/or monitoring fees;
• Inaccurate financial statements.

The Division recommends implementing written procedures, centralizing the fee billing process, utilizing resources established for reviewing the fee calculations, properly recording the expenses and fees received and assessed to clients, and validating fee calculations and consistency with procedures, contracts, and disclosures. Read the Division’s “Observations: Investment Advisers’ Fee Calculations” to ensure your firm’s procedures do not contain any deficiencies.