Skip to Content

SEC Seeks Fund Responses to Distribution-In-Guise Guidance

Since at least March 2016, SEC examiners have reportedly been checking whether mutual fund firms are complying with the SEC staff’s recent guidance on “distribution-in-guise.”

The guidance suggests that fund boards, investment advisers, and other relevant service providers consider assuming what some regard as significant new responsibilities. The guidance seeks principally to ensure that so-called “subaccounting fees,” which funds pay to intermediaries for shareholder and recordkeeping services, are not being used directly or indirectly to pay for distribution without complying with the generallyapplicable legal requirement that fund distribution payments be covered by a “Rule 12b-1 plan.” According to the guidance, regardless of whether a fund has a Rule 12b-1 plan, “the fund should have adequate policies and procedures for reviewing and identifying any payments that may be for distribution-related services that are not paid through the plan.”

With the ink barely dry on the guidance, which was published in January, the staff’s seeming impatience surprises some. Their reaction results from the significant nature of the guidance, plus the fact that the guidance mostly just identifies procedures that funds and their service providers could consider given their own particular circumstances, instead of prescribing specific procedures that funds should generally adopt. This, in turn, also raises a question as to whether the staff is inappropriately treating any aspects of the guidance as a regulation without the benefit of public comment.

Nonetheless, the staff is at least clearly signaling its expectations that registrants and chief compliance officers should be well on their way to completing, if they have not already, the task of assessing their exposure to potential distribution-in-guise issues and implementing reasonably-designed compliance controls in light of the guidance.

©2024 Carlton Fields, P.A. Carlton Fields practices law in California through Carlton Fields, LLP. Carlton Fields publications should not be construed as legal advice on any specific facts or circumstances. The contents are intended for general information and educational purposes only, and should not be relied on as if it were advice about a particular fact situation. The distribution of this publication is not intended to create, and receipt of it does not constitute, an attorney-client relationship with Carlton Fields. This publication may not be quoted or referred to in any other publication or proceeding without the prior written consent of the firm, to be given or withheld at our discretion. To request reprint permission for any of our publications, please use our Contact Us form via the link below. The views set forth herein are the personal views of the author and do not necessarily reflect those of the firm. This site may contain hypertext links to information created and maintained by other entities. Carlton Fields does not control or guarantee the accuracy or completeness of this outside information, nor is the inclusion of a link to be intended as an endorsement of those outside sites.


The information on this website is presented as a service for our clients and Internet users and is not intended to be legal advice, nor should you consider it as such. Although we welcome your inquiries, please keep in mind that merely contacting us will not establish an attorney-client relationship between us. Consequently, you should not convey any confidential information to us until a formal attorney-client relationship has been established. Please remember that electronic correspondence on the internet is not secure and that you should not include sensitive or confidential information in messages. With that in mind, we look forward to hearing from you.