Some industry insiders, however, fear that reform may lead to the repeal of the rule altogether.
That would be a disaster for the industry, according to the Financial Services Institute Inc., an Atlanta-based trade group for independent broker-dealers.
"FSI has long held the position that Rule 12(b)-1 ... provides fair compensation to financial advisers for providing middle-class Americans with critical support and guidance in planning to achieve important financial goals, ranging from retirement to college funding for children to caring for aging parents," it said in a statement last week.
"Consistent with our advocacy platform, FSI applauds the SEC's decision to forgo 12(b)-1 repeal or modifications under the moniker of reform," the FSI's statement said.
The SEC had little choice but to postpone reform of 12(b)-1 fees, Andrew J. "Buddy" Donohue, director of its Division of Investment Management, told attendees at the Washington-based Investment Company Institute's Mutual Funds and Investment Management Conference in Palm Desert, Calif., last week.
"I believe that it would be wise in the current market environment for us to defer consideration of Rule 12(b)-1 reform for this year," he said. "We should address a few fundamental matters that directly impact investor protection concerns."
Those matters include "resolving" the uncertainty that surrounds different regulatory regimes governing investment advisers and broker-dealers, reviewing the rule governing money market funds (see related story, Page 22) and moving forward on guidance to fund directors in the valuation of portfolio securities, Mr. Donohue said.
One matter that he didn't address was the SEC's reform agenda related to the scandal surrounding Bernard Madoff, who pleaded guilty to fraud this month.
For example, the SEC will consider requiring advisers who have custody of client assets to undergo an independent, unannounced audit "to confirm the safekeeping of those assets," Mary Schapiro, chairman of the SEC, told the Senate Banking Committee last week.
The SEC has taken heat for allowing Mr. Madoff to operate for so long without discovering his crimes.
Nevertheless, there is no doubt that Mr. Donohue — who has been pushing for 12(b)-1 reform for more than two years — is frustrated at having to delay moving on the issue.
As a consolation prize for those anxious for 12(b)-1 reform, he told attendees at the ICI conference that the SEC still may issue to fund directors guidance on how best to evaluate the use of the fees.
"It remains that the factors investment company boards must consider when approving or renewing a Rule 12(b)-1 plan are outdated and may detract from effective board oversight," Mr. Donohue said.
"For this reason, it may be useful to consider exploring other potential means of addressing issues associated with the rule separate from and in advance of meaningful 12(b)-1 reform, such as the possibility of providing guidance to fund directors to better assist them in this area."
The ICI supports such additional guidance, as it seems to be a reasonable way to address the thorny issue of 12(b)-1 fees during volatile times, said Karrie McMillan, general counsel for the organization.
C. Meyrick Payne, a senior partner at partner at Management Practice Inc., a Stamford, Conn., consulting firm for independent-fund directors, is disappointed that the SEC is postponing 12(b)-1 fee reform. "I was sorry that we lost that," said Mr. Payne, who attended the ICI conference.
There is uncertainty from the fund directors' perspective when it comes to 12(b)-1 in that they really don't know what they are supposed to be reviewing, and they don't know how the fees are supposed to be legitimately used. Those issues impose some potential liability on them.
Many trustees would like to see the rule disappear, and they aren't alone.
"[The SEC doesn't] need to reform it; they need to eliminate it," said Frank Armstrong III, president and founder of Investor Solutions Inc., a Miami-based firm with about $400 million in assets under management. "It only obscures where the money is going."
Giving fund boards more guidance as to how to apply Rule 12(b)-1 won't help, because fund boards haven't proven themselves to be very good investor watchdogs, Mr. Armstrong said.
Brokerage firms, however, think that 12(b)-1 fees are necessary.
"It's our experience that most investors prefer to have the benefit of professional guidance when managing their money," James D. Weddle, a managing partner with Edward Jones of St. Louis, wrote to the SEC in March 2008.
"They generally want that help both at the time of purchase and throughout the life of the investment," he wrote. "Rule 12(b)-1 — including trail commissions — makes this investment model possible with regards to mutual funds."
But regardless of whether one supports 12(b)-1 fees, the SEC's position seems appropriate for the times, said Burton Greenwald, a Philadelphia-based mutual fund consultant, who attended the ICI conference.
"He's very realistic," Mr. Greenwald said of Mr. Donohue. "In the entire scheme of things, 12(b)-1 is a low priority."
E-mail David Hoffman at email@example.com.