HR-2225-119
Received in the Senate and Read twice and referred to the Committee on Banking, Housing, and Urban Affairs.
Sponsored by Brad Sherman (D-CA)
What it does
This bill would allow registered investment companies (such as mutual funds) to exclude fees and expenses from business development companies (BDCs) when calculating the "Acquired Fund Fees and Expenses" (AFFE) figure shown in their fee disclosure tables. Currently, SEC rules require funds to include BDC-related costs in this line item. The bill would make this exclusion optional on investment company registration statements filed with the SEC.
Who benefits
Registered investment companies (mutual funds, closed-end funds, variable annuity funds) that hold BDC shares, as they would report lower headline fee figures. Business development companies themselves, which may attract more investment if the fee disclosure barrier is removed. Small and mid-sized businesses that BDCs finance, as increased capital flow into BDCs could expand lending to them. Retail and institutional investors who want BDC exposure through a fund wrapper and currently face artificially inflated fee disclosures. Financial advisors and fund distributors who sell BDC-holding funds.
Who is hurt
Retail investors who rely on the AFFE figure as an apples-to-apples cost comparison across funds — removing BDC fees from the calculation could make some funds appear cheaper than they actually are in total cost. Consumer and investor protection advocates who argue full fee transparency is essential. Competing investment vehicles (e.g., direct BDC investments, private credit funds) that do not benefit from the same disclosure treatment. Financial regulators at the SEC, whose existing fee disclosure framework would be partially overridden by statute.
Supporters argue
Supporters argue that the current AFFE rule distorts cost comparisons by forcing funds to include BDC fees that are already disclosed separately in BDC filings, effectively double-counting costs and making BDC-holding funds appear more expensive than comparable funds. They contend this accounting quirk has caused many fund managers to avoid BDC investments altogether, cutting off a critical source of capital for small businesses that cannot access traditional bank lending — a gap that BDCs were specifically created by Congress to fill under the Investment Company Act of 1940.
Opponents argue
Opponents argue that removing BDC fees from the AFFE calculation reduces the transparency that investors depend on to make informed comparisons, since the total cost of owning a fund — including pass-through fees — would no longer be visible in a single standardized line item. They contend that the appropriate remedy is an SEC rulemaking process with public comment, not a statutory carve-out that bypasses the agency's investor-protection expertise and the deliberative process that the SEC's fee disclosure framework was built on.
Constitutional context
No significant constitutional issue is presented. Congress has broad authority to regulate securities markets and investment company disclosures under the Commerce Clause (Art. I, §8, cl. 3), and the Investment Company Act of 1940 is a well-established exercise of that authority. The bill modifies a statutory disclosure requirement rather than delegating new sweeping authority to an agency, so the major questions doctrine (West Virginia v. EPA, 2022) and post-Chevron scrutiny (Loper Bright v. Raimondo, 2024) are not directly implicated.
Checks and balances
Congress would narrow the SEC's existing disclosure framework by statute; the SEC retains authority to implement and enforce the modified rule, and courts could review any SEC implementing action under the post-Loper Bright independent judgment standard.
Historical precedent
The SEC's AFFE disclosure requirement was adopted in 2006 and has been the subject of ongoing industry petitions for reform; Congress has not previously legislated a carve-out for specific fund types from this disclosure framework.