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SEC Staff on Combining Advisory and Administrative Agreements

The SEC Division of Investment Management staff recently issued guidance on combining separate advisory and administrative agreements into a single “management agreement.”  The staff stated that a fund’s board of directors may merge these agreements without a shareholder vote when the nature and level of services would not decrease and the fees would stay the same.  The staff stated that the fund board must approve the management agreement, including approval by a majority of independent directors, and that shareholder notice must be given.  The prospectus fee table would also need to be updated to reflect the new fee rate as part of the fund’s “management fees,” and not as an “other expense” of the fund.  The fee table would also have to include a footnote breaking out the fee rates attributable to the advisor and administration services.

As a relatively new initiative, the SEC Division of Investment Management staff occasionally identifies issues that may benefit from being highlighted generally for investment companies, investment advisers and their counsel.  These “Staff Issues of Interest” should not be relied on as definitive and are not official positions of the Commission.

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