Overhaul of 12(b)-1 fees on tap, says Cox

May 10, 2007 @ 11:58 am

By Sara Hansard

In a session with reporters after his speech to the ICI membership, Securities and Exchange Commission Christopher Cox indicated that the SEC could consider ways for advisers to recoup expenses for servicing their customers’ accounts if 12(b)-1 fees are abolished.

“To the extent that administrative expenses, for example, are being paid with these fees, those are administrative chores that fund shareholders need to have performed. The money needs to come from someplace,” Mr. Cox said in response to a question about whether the SEC could come up with a new system for brokers to be paid to provide ongoing service to customers.

Many brokers now use 12(b)-1 fees for that purpose.

About $11 billion in 12(b)-1 fees are collected annually.

“Undoubtedly they are put to a variety of important purposes,” Mr. Cox told reporters.

What the SEC is considering, is “whether or not the morphing of 12(b)-1 fees from the original purpose, marketing expenses, to today’s applications, has outstripped the confines of the original rule,” he said.

At the session with reporters, Mr. Cox reiterated the intention of the commission to “reform or repeal” 12(b)-1 fees.

“We are doing a top to bottom review of 12(b)-1 fees, their usefulness today in light of their original purposes, the dramatic changes that have taken in the market in the last 27 years since the rule [allowing the mutual fund fees] was first put into effect,” Mr. Cox said.

“I expect that we will, as a result of that, actually propose reform or repeal,” this year, he said.

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