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Fund Spy

SEC Calling Attention to Hidden Costs

It already settled with one firm in a recent sweep examining sub-transfer-agency fees, but there may be others.

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The SEC has been shining a light on a dark corner of mutual fund expenses--sub-transfer-agency fees. Recently, the SEC sanctioned one firm, First Eagle, for unlawfully accounting for what, in fact, were sales and marketing expenses as sub-transfer-agency fees. If reports are to be believed, the SEC has had other firms in its sights as part of its Distribution-in-Guise Initiative.

While the First Eagle case hasn't garnered a ton of attention, it's important nonetheless. First, this is a case in which a firm was charged with violating regulations meant to ensure that it appropriately pay and account for sales and marketing expenditures, and that violation harmed every shareholder in its funds. (Accordingly, we've lowered our Parent rating of First Eagle funds to Neutral from Positive.) Second, it's symbolic of the lengths to which firms have gone in pushing the limits of rules governing the practice of using fund assets to pay for sales and marketing activities.

Russel Kinnel does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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