The SEC recently announced that three investment advisers failed to disclose conflicts of interest and violated their duty to seek best execution by investing advisory clients in higher-cost mutual fund shares when lower-cost shares of the same funds were available. Collectively, the firms will pay almost $15 million, with more than $12 million going to harmed clients. The announcement follows release of the SEC’s Enforcement Division’s Share Class Selection Disclosure Initiative, which gives eligible advisers until June 12, 2018, to self-report similar misconduct and possibly obtain a recommendation of more favorable settlement terms, including no civil penalties, among other things.Industry observers familiar with fund operations say the self-reporting initiative comes with compliance and other challenges. The SEC also released FAQs to clarify aspects of the initiative. Participating in the program may require significant use of operational resources and may still expose the adviser to reputational risk and other consequences that may only be later realized. According to FinOps Report, calculating fee overcharges would involve reviewing shareholder records over the applicable period to determine which and how much investors paid in 12b-1 fees and the disclosures disseminated at the time, for example. Such undertakings could be time-consuming and present further questions and operational headaches such as whether the overcharges should be calculated based on the share class with the lowest fees or the ones with higher 12b-1 fees. Advisers must also complete a signed questionnaire that requires detailed information about the 12b-1 fee overcharges – creating the question of who assumes the responsibility of signing the questionnaire and whether the document could further expose the adviser to additional SEC inquiry.