Massachusetts Proposes Detailed Fee-Disclosure for Advisors
Massachusetts on Wednesday proposed requiring state-registered investment advisers to create a detailed table of fees they charge directly and indirectly, and send them to existing and new clients.
Secretary of the Commonwealth William Galvin, who opened the proposed regulation for informal comment, said more detailed disclosure of fees can help consumers understand the myriad of fees they pay today.
“It is no longer the case that advisers only charge their clients a fee for assets under management,” Galvin said in a prepared statement. “It is not uncommon for consumers today to pay different types of fees for advisory services, including retainer fees, subscription fees or third-party robo advisory fees.”
The Securities and Exchange Commission separately on Wednesday said in its annual examination priorities letter that it would be focused on whether advisors are properly calculating and disclosing fees, particularly on advisory accounts.
“Examiners will review, among other things, whether fees and expenses are calculated and charged in accordance with the disclosures provided to investors,” the SEC wrote in the letter. “Examiners will also review fees charged to advisory accounts, particularly where the fee is dependent on the value of the account, to assess whether assets are valued in accordance with investor agreements, disclosures, and the firm’s policies and procedures.”
In addition to its goal of promoting fee “transparency,” Massachusetts believes a fee table would help consumers comparison-shop among advisors, Galvin said.
The proposed fee table would be required only for RIAs, and not for advisors who operate solely as Finra-licensed registered representatives, said Debra O’Malley, a spokeswoman for Galvin.
Investment advisers are currently required to annually update their ADV forms filed with the Securities and Exchange Commission, but the Massachusetts proposal would require much more detailed information on fees charged.
A uniform table would also help consumers understand what they are paying for since “investment advisers who charge a fee based on a percentage of assets under management vary in the extent of services that they offer to clients,” the state said.
“While some investment advisers provide only portfolio management services, other investment advisers include a range of financial planning services within their assets-under-management fee. Clients should be aware of the investment adviser’s scope of services, including whether financial planning services are included in the fee arrangement or are considered an additional service for which they are charged separately.”
Massachusetts has not yet set a deadline for receiving comments. Its securities division expects to do that in coming days when it issues a formal solicitation of comments under the state’s administrative act, it said in a news release.
“Substantive input and comments from stakeholders will help assist the Division in considering the feasibility of implementing a fee table as well as the fee table’s content and structure,” the state wrote in its comment solicitation request.