Share Class ‘Amnesty’ for 401k Advisors: Marcia Wagner

401k, retirement, share class, regulation

Potential regulatory relief for conflicts of interest.

Will it be A shares, B shares …C, D, E, F or G shares?

If you’re confused over the plethora of share classes that pop-up on what seems like a routine basis, you’re not alone. Bewilderment over which do what, and those that are appropriate for plan sponsor clients, continues to hinder the industry.

Add to it a sharp regulatory focus and the stress gets worse. Share class selection is an enforcement priority for the Security and Exchange Commission in 2018, according to The Wagner Law Group. On Feb. 7, the SEC announced its 2018 examination targets, “wherein it affirmed its intent to protect retail investors, which includes share class selection and the disclosure and calculation of fees, expenses and other charges.”

Thankfully, the SEC announced its Share Class Selection Disclosure Initiative earlier this week, in which investment advisors “have until June 12, 2018 to self-report any conflict of interest situations in which clients were placed in more expensive share classes of mutual funds and advisors received 12b-1 fees, without proper disclosure, when lower-cost shares of the same funds were available,” according to a Wagner alert.

In its announcement, the Commission cited “potential widespread violations of this nature.”

“The Division will recommend that the Commission accept a settlement and will not recommend penalties against the advisor if client funds (plus interest) are promptly returned,” it notes. “Investment advisors that have already been contacted by the Division as of February 12, 2018 about possible violations of share class selection are not eligible to take part in the SCSD Initiative.”

However, it adds that “those subject to pending examinations by the Office of Compliance Inspections and Examinations related to this issue, but who have not been contacted by the Division, are eligible to participate.”


“The fact that the SEC is doing something like this is an indication of how prevalent conflicts-of-interest are, and that’s a scary thing,” says Barry Salkin, Of Counsel, The Wagner Law Group. “However you feel about the DOL’s fiduciary rule, they were on to something.”

While noting there needs to be harmonization between the SEC and DOL on the issue, “no matter what opponents of the rule say, it’s not going away. It might not have as many bells and whistles as the Best Interest Contract Exemption, but you will see something, and deservedly so.”

Many in the Trump Administration were hoping for “death by a thousand cuts” by delaying the rule long enough, Salkin adds, but “if they suddenly reverse course on implementing the rule, they better have a good reason as to why or they will lose in court.”

To take advantage of the SCSD Initiative, advisors should self-report by notifying the Division by 12:00 am EST on June 12, 2018. Wagner says that advisors must then complete a questionnaire confirming eligibility under the program within 10 business days of notification. Any settlement will be subject to the terms of eligibility.

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