Too Important to Ignore

SEC’s Office of Investor Advocate, in its June 30th report, has outlined its initiatives for 2017.   The report makes clear that among the items on its 2017 agenda, such as public company disclosure, equity market structure, municipal market reforms, accounting and auditing issues, etc., they will focus on whether “investors understand the fees and expenses they pay for an array of products and service providers, including funds, investment advisers, and broker-dealers.”    This will include whether fees and expenses could be disclosed more effectively.

This is an area that first received attention from Andrew Bowden, former OCIE Director, whose efforts resulted in many high profile administrative proceedings and penalties assessed against large and small private fund advisers alike.   It has always been a requirement to provide a sufficient amount of disclosure to prospective and existing clients in order for them to make an informed investment decision, whether that is in the Form ADV brochure, offering memoranda, client inquiries, requests for proposals, website disclosures, etc., but I am not sure how one can be assured that an investor reads and understands the disclosures being provided to them prior to investing.      

Where private fund managers need to go the extra mile is to develop policies and procedures, in coordination with the compliance, senior management and often overlooked fund administrators, with the requisite controls to reasonably ensure they are meeting regulatory expectations in addressing the ever growing important conflict of interest and on-going attention that funds expenses has and will continue to receive. 

We constantly see inconsistencies in what is disclosed versus actual practice.

Investor Advocate Report on Objectives for FY 2017