SEC plans to revamp 12(b)-1 fees

Commission wants marketing and service fees clearly labeled as such; fees would be capped at 25 basis points

Jul 21, 2010 @ 12:13 pm

By Jessica Toonkel

Andrew "Buddy" Donohue: “This new approach is intended to increase competition of the sale of mutual fund shares.” (Photo: Bloomberg)

The Securities and Exchange Commission has proposed eliminating 12(b)-1 fees as they currently exist.

Under the proposal, funds would be able to create a class of shares by which broker-dealers would determine the pricing. “Mutual funds currently set the sales charge under a 70-year-old provision,” said Andrew “Buddy” Donohue, director of the SEC's Division of Investment Management,during a meeting this morning. “This new approach is intended to increase competition of the sale of mutual fund shares.”

As reported by InvestmentNews on Tuesday, the SEC proposal would allow firms to charge a “marketing and service fee” of up to 0.25%. Anything above that amount would be deemed “an ongoing sales charge,” which would be limited to the highest fee charged by the fund for shares that have no ongoing fund sales charge. For example, if a fund charges a 4% front-end load, another class couldn't charge more than that amount to investors over time. [Read the full fact sheet on proposed 12(b)-1 fee changes distributed by the SEC this morning.]

In 2009, 12(b)-1 fees generated $9.5 billion for fund firms.

The term “12(b)-1” would no longer exist, said Mary Schapiro, chairman of the SEC, during the meeting this morning. Additionally, mutual fund companies would be required to disclose the marketing and service fees, and the ongoing sales charge in every prospectus, shareholder report and investor transaction.

The SEC's proposal comes on the same day that President Barack Obama signed the most sweeping set of financial rules since the Great Depression.

0
Comments

What do you think?

View comments

Recommended for you

Featured video

INTV

Ed Slott: 3 questions to ask before converting to a Roth IRA

To do a Roth conversion, money has to be spent. Here is what financial advisers and their clients should consider before they incur tax costs, according to Ed Slott, founder of Ed Slott's Elite IRA Advisor Group.

Latest news & opinion

Will Jeffrey Gundlach's Trump-like approach on Twitter work in financial services?

The DoubleLine CEO's attacks on Wall Street Journal reporters is igniting a discussion on what's fair game on social media.

Plaintiffs win in Tibble vs. Edison 401(k) fee case

After a decade of activity around the lawsuit, including a hearing before the U.S. Supreme Court, judge rules a prudent fiduciary would have invested in institutional shares.

Advisers get more breathing room to make Form ADV changes

RIAs can enter '0' in some new parts of the document before their annual filing next year.

Since banking scandal, Wells Fargo advisers with more than $19.2 billion leave firm

Despite a trying year, the firm has said it will sweeten signing bonuses for veteran advisers.

Is LPL's deal sweet enough for NPH's 3,200 reps and advisers?

They will have to decide if the signing package they are being offered by LPL makes sense. A lot is hanging in the balance.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print