Massachusetts Kicks the Tires on Fee Disclosure Mandate

The Massachusetts Securities Division has unveiled a proposed regulation that would require investment advisers who are registered with the division to create a fee table for advisory clients.

The proposal was announced Jan. 7 by Secretary of the Commonwealth William F. Galvin. In the past, Galvin has investigated year-end matching contributionsNicholas Schorsch and ACRP, his non-traded REIT firm; and “rogue” advisers.

According to Galvin’s announcement, recent changes occurring in the financial services industry, with evolving fee structures, delegation of asset management services and increasing emphasis on financial planning, have created the need to increase transparency.

In addition, an increasing number of state-registered investment advisers that charge for advisory services are using new types of fee structures, including retainer fees, subscription fees, third-party advisory fees, robo-adviser fees and fees based on net worth, Galvin notes.

Under the proposal, the table would be provided to current and prospective clients, posted on an investment adviser’s website, and updated and delivered annually in paper or electronic form to the investment adviser’s clients.

The Securities Division is seeking comments and feedback on more than a dozen questions that it has included with the announcement. The deadline for submitting comments, however, was not apparent in the announcement.

Among the questions the Securities Division is seeking feedback on:

  • Is there potential for investor confusion caused by new advisory fee models, and could this confusion be best addressed through the fee table or some other methods?
  • Do the proposed fee table column titles and permissible categories of services provide investment advisers with adequate flexibility to describe their fees and services?
  • For investment advisers that have several fee models depending on the services provided to a client, would the proposed fee table be readily understandable to clients?
  • If an investment adviser’s advisory fee includes the fees of sub-advisors within it, how should investment advisers disclose the advisory fees of these third-party money managers and robo-advisers to clients?
  • If third party advisory fees are charged separately to the client by a third party money manager, should these fees be disclosed by the state-registered investment adviser?
  • How should additional fees charged by parties other than the investment adviser, such as mutual fund fees or trading costs, be disclosed? (The proposed fee table does not include third party commissions or costs.)
  • For investment advisers who charge fees based on a percentage of assets-under-management, how should the fee table distinguish between advisers who provide financial planning services and those who provide only portfolio management services?
  • How should the fee table distinguish between investment advisers who create a one-time financial plan in comparison to those who provide ongoing financial planning services?

The Securities Division is posting comments on the proposal on the web page devoted to Galvin’s announcement. Currently there are 13 comment letters posted, all dated Jan. 7, the day the proposal was unveiled. Two of the 13 are brief and anonymous; the rest are from advisers — some of whom support the idea and some of whom oppose it.

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