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No Guidance Coming On Funds Of Funds Double-Dipping

Securities and Exchange Commission official Jennifer McHugh last week dashed industry hopes that the agency might issue guidance on compliance with a new SEC rule against double-dipping fees charged by funds of funds.

    Securities and Exchange Commission official Jennifer McHugh last week dashed industry hopes that the agency might issue guidance on compliance with a new SEC rule against double-dipping fees charged by funds of funds. The rule imposes a fiduciary duty on parent funds of funds boards and managers to reduce fees by the amount charged by their underlying funds.

    McHugh, special assistant to Director of the SEC's Division of Investment ManagementAndrew Donohue, was asked about the issue at a closed-door session of the Investment Company Institute's annual Securities Law Developments Conference. Participants said later that she seemed surprised that the subject was raised. "I don't expect any more guidance on that front. You have flexibility to do what is appropriate," said McHugh.

    There are at least two problems industry lawyers would like the SEC to address. First, would it be fair for a fund of funds to charge a fee of some kind, notwithstanding fees asked at the lower level, in cases where the manager makes allocation decisions, moving money around among various underlying funds. Not all funds of funds do such picking and choosing. The second aspect concerns a disclosure provision, which some would say calls for guidance on what kind of a de minimis exception there should be for ordinary mutual funds which just briefly put money in another fund. As the rule stands, said a lawyer, all double-dipping fees must be disclosed even "if it is only for one day in the year."