Guide the understanding and application of fee disclosure requirements across the advisory and brokerage landscape. This skill covers RIA fee disclosure (Form ADV), fund-level fee tables, Reg BI cost obligations, wrap fee programs, ERISA fee transparency, and revenue sharing — enabling a user or agent to identify where fee disclosure gaps or violations may arise.

9 — Compliance & Regulatory Guidance

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RIAs must disclose in their firm brochure:

The disclosure must be "full and fair" and not misleading. The SEC has brought enforcement actions for advisers who disclosed fee schedules but obscured the total cost to clients by omitting indirect compensation or failing to describe how fund-level fees compound on top of advisory fees.

The "What are your fees?" section of Form CRS must include:

Form CRS is limited to 2 pages (4 for dual registrants), so fee disclosure is necessarily summarized. It must direct clients to the ADV Part 2A for more detailed information.

Reg BI requires broker-dealers to disclose material facts about costs and fees before or at the time of a recommendation:

The SEC has emphasized that the disclosure must be specific enough to allow the customer to understand the total cost of the recommendation and compare it to alternatives. Vague references to "standard industry fees" are insufficient.

SEC rules require a standardized fee table in mutual fund and ETF prospectuses:

Expense Example: A standardized illustration showing the dollar cost of investing $10,000 over 1, 3, 5, and 10 years, assuming a 5% annual return and redemption at the end of each period. This enables cross-fund comparison regardless of marketing language.

Named after SEC Rule 12b-1, these are annual distribution and marketing fees charged to fund assets:

Fund companies may pay broker-dealers or advisory platforms for preferred placement, marketing support, or inclusion on recommended lists:

Disclosure requirements: Both FINRA and the SEC expect clear disclosure of revenue sharing arrangements. Failure to disclose that a firm receives additional compensation for recommending specific funds is a serious conflict-of-interest violation. The SEC has brought enforcement actions where firms described fund selection as "objective" while receiving undisclosed revenue sharing.

Wrap fee programs bundle advisory, brokerage, custody, and other services into a single asset-based fee:

DOL Section 408(b)(2) disclosure — retirement plan service providers must disclose to plan fiduciaries:

DOL Section 404a-5 disclosure — plan administrators must provide participants with:

Beyond explicit fees, clients bear costs that may not be separately disclosed:

Comprehensive fee analysis requires looking beyond the stated fee schedule to capture total cost of ownership.

Scenario: An RIA charges clients a 1% annual advisory fee. The firm also recommends mutual funds that pay 0.25% 12b-1 fees to the adviser. The ADV Part 2A describes the 1% advisory fee in detail but mentions 12b-1 fees only in a general statement: "Some funds we recommend may charge distribution fees." The firm does not disclose that it receives these 12b-1 payments. Compliance Issues: ADV Part 2A Item 5 requires disclosure of compensation received from third parties, including 12b-1 fees. The failure to disclose that the firm receives this revenue — and that it creates a conflict (incentive to recommend funds with 12b-1 fees over those without) — violates the fiduciary duty of loyalty. Total client cost is actually 1.25%, not 1%. Analysis: This scenario matches the pattern targeted by the SEC's Share Class Selection Disclosure Initiative. The firm must: (1) specifically disclose that it receives 12b-1 fee revenue, (2) quantify or estimate the amount, (3) explain the conflict it creates, (4) evaluate whether lower-cost share classes are available, and (5) document why the recommended share class is in the client's best interest. If an institutional share class without 12b-1 fees is available and the client qualifies, recommending the 12b-1 class without disclosure is a violation.

Scenario: A BD places a 68-year-old retired buy-and-hold client in a wrap fee program charging 1.5% annually. The client's $800,000 account holds 5 ETFs and rebalances once per year. An unbundled account would cost approximately 0.3% (advisory fee) plus $50 in annual trading costs. Compliance Issues: Potential reverse churning. The wrap fee ($12,000/year) is dramatically higher than unbundled cost ($2,450/year) for a client whose low trading activity does not benefit from the wrap structure. The firm's wrap fee brochure must assess cost-effectiveness, and both FINRA and Reg BI require that the account type recommendation serve the client's interest. Analysis: The firm should have a periodic cost-effectiveness review process for wrap accounts. A client paying $9,550 more per year for a structure designed for active trading is not receiving corresponding value. Under Reg BI's Care Obligation, the BD must consider whether this account type is in the client's best interest. Under IA fiduciary duty (if the firm is dually registered), the ongoing fee without corresponding service may violate the duty of care.

Scenario: A 401(k) plan with $15M in assets provides participants with an annual fee disclosure that lists fund names and ticker symbols but does not include expense ratios, benchmark performance, or a statement of actual fees charged to each participant's account. Quarterly statements show account balances but not fee deductions. Compliance Issues: DOL Section 404a-5 violation. The regulation requires investment-level fee and performance information in a specific format (chart/table), including total annual operating expenses as both a percentage and dollar amount per $1,000 invested. Quarterly statements must show actual dollar amounts of fees and expenses charged. Analysis: The plan fiduciary (and its service provider under 408(b)(2)) must provide compliant disclosures. Non-compliant fee disclosure exposes the plan fiduciary to liability and undermines participants' ability to make informed investment decisions. The fix requires producing the DOL-prescribed comparative chart with expense ratios, benchmark comparisons, and website URLs for additional information, plus detailed fee breakdowns on quarterly statements.