Regulatory Scrutiny on Wrap Fee Programs – Not Such a Wrapper’s Delight

December 22, 2017

The following article appeared in the December 2017 of NSCP's Currents Newsletter. It was written by ACA's Michael Abbriano.

Since the first wrap fee program was launched in 1975, their popularity has grown exponentially, with more than $3.5 trillion in assets under management as of 2013.1 In its 2014 Examination Priorities, the SEC’s Office of Compliance Inspections and Examinations (“OCIE”) announced an initiative focused on wrap fee programs, and wrap fee programs have been referenced specifically in OCIE’s Examination Priorities in each subsequent year.

Because wrap fee programs are primarily marketed to retail investors (including to individuals who are investing retirement assets) and have the potential to raise numerous potential conflicts of interest, these programs historically have been subject to significant regulatory scrutiny. After several years of focusing more on private funds following the enactment of the Dodd-Frank Act in 2010, regulatory scrutiny on wrap fee programs has re-intensified. This article will provide an overview of how wrap fee programs operate as well as practical guidance for advisers to address certain aspects of wrap fee programs that have been a focus of the SEC in recent years.

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