Quantcast
The MFWire
Manage Email Alerts | Sponsorships | About MFWire | Who We Are

Subscribe to MFWire.com's News Alerts [click]

Rating:Beware Shadow Regulation on Mutual Fund Distro Not Rated 0.0 Email Routing List Email & Route  Print Print
Tuesday, March 17, 2015

Beware Shadow Regulation on Mutual Fund Distro

Reported by Neil Anderson, Managing Editor

Fundsters, when it comes to distribution, forget "shadow banking" and brace yourselves for "shadow regulation".

Frank Nasta, managing director and head of J.P. Morgan Funds Management Legal at J.P. Morgan Asset Management, coined the "shadow regulation" term (a play on the "shadow banking" epithet hurled by banking regulators at non-bank financial services firms like asset managers) this morning when discussing the "industry chatter" about the SEC preparing to go after some asset managers with respect to how they pay intermediaries. Nasta was speaking on the general session "U.S. and Global Trends in the Regulation of Payments to Intermediaries" panel at the Investment Company Institute's (ICI's) 2015 Mutual Funds and Investment Management Conference at the JW Marriott Desert Springs in Palm Desert, California.

ICI general counsel David Blass (an SEC veteran who joined the ICI in the fall) moderated the panel, which also included: Bella Caridade-Ferreira, CEO of London-based Fundscape; Greg Sheehan, partner at Ropes & Gray; and John Zerr, general counsel for U.S. retail at Invesco Advisers.

In his opening remarks yesterday, Blass addressed the "Distribution in Guise" sweep that the SEC has been working on for more than two years. This morning Blass, Nasta, and Sheehan all reminded fundsters that word on the street (and hints from the SEC) suggest that the sweep is going to soon result in some enforcement action against asset managers. Blass clarified that statements from SEC staff suggest that they're examining "about 15 fund complexes" in the sweep, and that broker-dealers (i.e. the intermediaries being paid by the funds) are also being looked into. It all hinges on what does, and doesn't, count as distribution services that should be paid for via 12b-1 fees versus other services that can be paid for out of fund assets.

Blass showed ICI data that tracks transfer agency fees falling since 1991 when described in inflation-adjusted hard-dollars and staying flat when described in basis points.

And Blass and the other panelists pushed back against any "regulation through enforcement," which Nasta characterized as shadow regulation.

"I have no idea what the SEC's looking at from an enforcement perspective or what they're seeing," Blass said. "These are sound practices that are based on legal reasoning that's been established for at least a decade or longer."

"The SEC has been looking at this for well over two years now," Nasta said. "The industry chatter and rumors are that there will be enforcement actions."

Sheehan said he's worried that the SEC is applying a principal 1998 letter on bundled fund supermarket fees and applying it to unbundled fees, like sub-accounting fees. And Nasta added a warning that some in the SEC see sub-transfer agency (sub-TA) fees "are nothing more than distribution in disguise," hence the title of the sweep.

"Everyone in this room should be concerned about that," Nasta said. "Regulation through enforcement is far from the best way to go about regulating something."

The panelists urged the SEC to instead use the regular rulemaking process if they want distribution payments to intermediaries to be handled differently.

"Any changes should not happen until there is a full and fair, open and honest, transparent discussion with all the affected parties," including the SEC, fundsters, B-Ds, investors, and 401(k) recordkeepers, Nasta said.

Blass also offered words of warning for fundsters with smaller shops. If the SEC fixates on "what in their view is reasonable" in terms of distribution payments on an absolute basis, smaller fund firms may have difficulty getting onto platforms since they lack the leverage of larger players.

If the SEC does act, through enforcement or rule-making (or rule-tweaking), beware the unintended consequences. Caridade-Ferreira offered her take on some recent rule-changes in the United Kingdom. There, regulators made it so that investors have to pay for their financial advisors directly, eliminating revenue-sharing payments to advisors and the like. Smaller investors, she says, have been driven out of the market by the fees and even by the advisors and banks who don't want to risk running afoul of the rules for clients they can't make much money on. And she says other parts of Europe are going the same way.

"We now have a growing advice gap in the UK," Caridade-Ferreira said, adding that the change is also encouraging "vertical integration," with big advice players combining with big fund firms to adapt to the changing rules. "Innovation, creativity, boutique managers, they're finding it much more difficult ... to get in touch with the advisors advisors and communicate their wares. Big complexes can afford better prices."

The one unintended upside? Caridate-Ferreira says the regulatory change in the UK "cleverly put the advisor in the driver's seat" when it comes to evaluating costs and performance and the like. That, she says, has led to what "may be too much of a focus" by advisors on driving down fund fees. 

Stay ahead of the news ... Sign up for our email alerts now
CLICK HERE

0.0
 Do You Recommend This Story?



GO TO: MFWire
Return to Top
 News Archives
2025: Q3Q2Q1
2024: Q4Q3Q2Q1
2023: Q4Q3Q2Q1
2022: Q4Q3Q2Q1
2021: Q4Q3Q2Q1
2020: Q4Q3Q2Q1
2019: Q4Q3Q2Q1
2018: Q4Q3Q2Q1
2017: Q4Q3Q2Q1
2016: Q4Q3Q2Q1
2015: Q4Q3Q2Q1
2014: Q4Q3Q2Q1
2013: Q4Q3Q2Q1
2012: Q4Q3Q2Q1
2011: Q4Q3Q2Q1
2010: Q4Q3Q2Q1
2009: Q4Q3Q2Q1
2008: Q4Q3Q2Q1
2007: Q4Q3Q2Q1
2006: Q4Q3Q2Q1
2005: Q4Q3Q2Q1
2004: Q4Q3Q2Q1
2003: Q4Q3Q2Q1
2002: Q4Q3Q2Q1
 Subscribe via RSS:
Raw XML
Add to My Yahoo!
follow us in feedly


    Sorry, no records in the database matched your search parameters. Clich back and try again.



  1. Nicsa webinar - New research by Alex Edmans and the Diversity Project - The Power of diverse thinking: How the best teams make decisions, July 1
  2. MFDF Director Discussion Series - Open Forum, July 9
  3. MFDF webinar - Mid-Year Tax Update for Registered Investment Companies, July 10
  4. MFDF Director Discussion Series - Open Forum (Philadelphia), July 15
  5. 2025 MMI Women in Advisory Solutions Forum, Jul 15-16
  6. Nicsa webinar - How Trusted GenAI is Transforming Data Access in Asset Management, July 16
  7. MFDF webinar - M&A and Consolidation in Asset Management, July 16
  8. MFDF webinar - ETF Conversions, July 17
  9. MFDF Director Discussion Series - Open Forum (New York), July 22
  10. MFDF Ask Anything webinar - AI Edition, July 24
  11. MFDF webinar - Use of Derivatives by RICs, July 29
  12. MFDF Director Discussion Series - Open Forum (Columbus, Ohio), August 20
  13. Samfund Soiree Boston 2025, August 21
  14. MFDF webinar - The Audit Committee Chair's Guide to Balancing Duties and Emerging Issues, September 3
  15. ICI ETF Conference, Sep 8-10
  16. Nicsa webinar - Reimagining Reconciliation: AI, Regulation, and Capital Markets Transformation, September 10
  17. MFDF webinar - Series Trust Funds - Compliance and Board Reporting, September 10
  18. MFDF In Focus - Board Oversight of DEI in Current Landscape, September 11
  19. MFDF webinar - MFDF 15(c) White Paper Webinar Series: Part 4 – Enforcement Action Takeaways, September 16
  20. MFDF webinar - Latest in Closed-End Funds Litigations, September 23
  21. MFDF webinar - Fixed Income Insights: Navigating Market Trends & Opportunities, September 24
  22. MFDF webinar - Risk Management Essentials for RICs and Boards, September 29
  23. MFDF webinar - Diligent - Tools for Fund Board Book, October 1
  24. 10th annual Fuse Forum, October 8
  25. MFDF webinar - Essential Strategies in Board Oversight of Operational Risk Management, October 14
  26. 2025 MMI Annual Conference, Oct 15-17




©All rights reserved to InvestmentWires, Inc. 1997-2025
14 Wall Street | 20th Floor | New York, NY 10005 | P: 212-331-8968 | F: 212-331-8998
Privacy Policy :: Terms of Use