Fee Pressure: Mutual Fund Company Oversight Increasingly Focused On Payments to Intermediaries

It’s a fancy way of saying the SEC has them worried.

Boston Financial finds that more than half of the respondents (59%) to its 5th Annual Financial Intermediary Administration Survey indicated they have “evolved their evaluation of sub-accounting fees.”

Ken Larsen, vice president of Boston Financial’s Financial Intermediary Administration business, says it’s no surprise that oversight programs are being “enhanced” given that the SEC has been conducting sweeps with a focus on payments to intermediaries.

“Fund boards are clearly increasing their attention on sub-accounting arrangements and fees,” Larsen says. “That oversight requires more information to better understand the services being performed by the intermediaries, the amounts being paid, how they are being validated, and the funding allocation methods being used.”

Almost all of the respondents (94%) confirmed that they set limits on the level of intermediary fees that the funds will pay, generally directing the excess to either the distributor (26%) or the asset manager (49%) to pay. About a third of the fund companies (33%) currently disclose those limits in the fund prospectus or Statement of Additional Information.

This year, Boston Financial explored how fund companies are staffing their intermediary oversight programs. According to the survey, 31% of respondents have an equivalent of one person allocated, another 31% have two to three people, 15% have four to five people, and 23% have more than five people. The majority of that staffing represents existing resources assigned to oversight tasks (56%) or a combination of existing and dedicated (31%). The assigned staff is most often from the compliance (83%) or operations (72%) departments.

The most common tool being used for oversight purposes (91%) is review/assessment of SSAE16 and FICCA. This usage is up from last year (82%), likely reflecting the increased adoption of FICCA by intermediary firms.

As the largest provider of transfer agency outsourcing services in the U.S., Boston Financial has a unique perspective on fund company needs and service gaps and a solid understanding of the business landscape. Boston Financial’s FIA Solutions provides fund companies with data and relationship management information and tools to improve intermediary payment administration and simplify inspection and monitoring obligations.


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