On November 10, 2021, the SEC released an alert entitled “Division of Examinations Observations: Investment Advisers’ Fee Calculations.” The alert explains what the Division of Examinations will be reviewing when determining whether advisers “have adopted and are following policies and procedures that are reasonably designed to result in the fair and accurate charging of fees.” The alert went on to explain that the Division has recently concluded a national initiative focusing on advisory fee miscalculations and control weaknesses – so what does this mean for you?
The SEC pointed out several deficient practices, policies, and procedures, a few of which we’ve highlighting here as being especially worth your attention:
- Breakpoint or tiered billing rates were not correctly calculated
- Failure to maintain written policies and procedures on advisory fee billing, monitoring fee calculations and billing, or both
- Inaccurate percentages were used to calculate advisory fees
- Incorrect or incomplete client account valuations were used
The SEC has made it clear that it expects fee calculation and billing to warrant future reviews, so it’s important for your auditor to provide feedback and identify areas for improvement around these areas of potential deficiency.
Companies with the following characteristics should pay special attention to this alert and ensure their fee calculation and billing practices are reviewed:
- Advisors that have clients with excluded assets or fee exemptions
- Clients that hold hard-to-value assets
- Complex or multi-tiered fee schedules
If you have any questions about the SEC alert or would like to discuss in detail proper controls around fee calculations, Wolf & Company is here to help. Reach out to Matthew Vaughn at [email protected] or 617-933-3352.
