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| 1 minute read

SEC Issues Risk Alert on Investment Adviser Fees

Last week, the SEC Division of Examinations published its observations of advisory fees charged by SEC-registered investment advisers (IAs). From double-billing to holding unearned fees, the Division highlighted numerous deficiencies in IA fee calculations, disclosures, policies and procedures, and financial statements.

IAs were found to have double-billed clients, charged fees different to those already agreed upon, inconsistently refunded unearned fees, and required clients to provide written requests to refund unearned advisory fees. Other IAs failed to provide disclosures that properly reflected current fees and fee calculations, and used advisory documents with inconsistent terms. Some IAs did not maintain written policies and procedures addressing advisory fee billing and monitoring. Finally, the Division found many inaccuracies with financial statements, such as failing to disclose financial distress and compensation expenses.

In light of these findings, the Division recommends that IAs:

  • Adopt and implement written policies and procedures that address advisory fee billing processes and calculations;
  • Centralize the fee billing process and validate that fees are consistent with compliance procedures, advisory contracts, and disclosures;
  • Utilize resources and tools for reviewing fee calculations; and
  • Properly record all advisory expenses and fees assessed to and received from clients, including those paid directly to advisory personnel.

Although the Alert may not present new legal issues, it indicates that the SEC may now be focusing on billing practices in its oversight of IAs. IAs should use this as an opportunity to review their billing practices for deficiencies.

It is important for clients to receive timely and accurate information regarding fees and expenses when hiring an investment adviser because every dollar an investor pays in fees and expenses is a dollar not invested for the investor’s benefit.


broker-dealer, capital markets, capital markets and securities, corporate