SEC Encourages Advisors to Self-Report Fiduciary Violations by June 12, 2018

The SEC announced a self-reporting initiative for investment advisors who admit violations of the federal securities laws relating to certain mutual fund share class election issues while promptly returning money to harmed investors. The initiative is entitled the “Share Class Selection Disclosure Initiative” and is focused on those advisors who have put clients into high-fee mutual fund classes when a less expensive share class for the same fund was available and appropriate. If the advisor self-reports and returns money to the harmed investor, the SEC’s enforcement division will not recommend civil penalties against the advisor.

The initiative highlights the SEC’s focus on the conflict of interest that is created when an advisor receives compensation for selecting a more expensive fund share class when a less expensive share class for the same fund is available. The SEC notes this conflict of interest must be disclosed to the investor. To be eligible for the self-reporting initiative, investment advisors must notify the division of enforcement of their intent to self-report no later than June 12, 2018.