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CHANGING 12B-1 FEES Proposed changes to 12b-1 fees are intended to level the playing field for investors, SEC chairwoman Mary Schapiro said. |
The Securities and Exchange Commission voted yesterday to revamp fees that most mutual funds charge to cover sales and distribution costs, and that have become a source of confusion for investors and industry insiders alike.
Revenue from so-called 12b-1 fees can be used for a wide range of fund services beyond upfront sales costs, and an investor can pay the fees for years after they have gotten into a fund, eroding returns. Even industry pros find 12b-1s confusing, because funds can use the fee revenue in so many different ways beyond compensating brokers.
The commission voted unanimously to adopt changes proposed by the SEC staff to limit investor costs and improve fee disclosure. The rules are subject to a 90-day public comment period.
The proposals, SEC chairwoman Mary Schapiro said, “are intended to provide clarity and fairness to a mutual fund distribution system that has become confusing and potentially anticompetitive.’’
The proposed rules include reducing the cap on how much a fund can charge in 12b-1s, which can make up one component of a fund’s overall ongoing expenses. The 12b-1s are separate from the management fees that all funds charge for overseeing an investment portfolio.
About two-thirds of the industry’s 8,000 funds charge 12b-1s, which brought in $9.5 billion last year. That’s up from a few million dollars when funds were first permitted to charge the fees in 1980, the SEC said.
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