The Securities and Exchange Commission plans to re-examine the issue of 12(b)-1 fee reform, Chairman Mary Schapiro pledged today at the Mutual Fund Directors Forum Annual Policy Conference in Washington.
“I am absolutely committed to a meaningful and open-minded review of Rule 12(b)-1,” she told 170 independent mutual fund directors who attended the conference.
The Mutual Fund Directors Forum is located in Washington.
Modification of the controversial fees, which are charged against mutual fund assets to pay for distribution and service expenses, “is an area in need of reconsideration, and the SEC will pursue that reconsideration with the interests of investors first and foremost in our minds,” Ms. Schapiro said.
However, reforms directly intended to stem the financial crisis have higher priority, she said.
Earlier this year, SEC Division of Investment Management Director Andrew “Buddy” Donohue said that the SEC’s review of the fees would be
delayed for at least a year, due to more pressing matters of that the SEC must deal with due to the financial crisis.
But the SEC chairman denied that the agency had put off dealing with 12(b)-1 fees.
“There’s nothing causing a change,” Ms. Schaprio told reporters after her speech.
“It’s an important issue. We have these short-term things that are very much a direct response to the financial crisis, and would like to get through those,” she said.
Ms. Schapiro declined to give a time frame for 12(b)-1 reform.
“There’s a practical limitation to how much you can push through the process at one moment,” and the SEC agenda is “pretty well” full for the year, she said.
Also on the agenda for the coming year is scrutiny of new disclosure requirements for target date funds, Ms. Schapiro said.
The funds, which are sold as investments that reduce risk as investors age, are likely to grow in popularity because many 401(k) plans include them as default investments, she noted. About $152 billion was in the funds in March.
The funds “have produced some troubling results,” Ms. Schapiro said.
The average loss in 2008 among 31 funds with a 2010 retirement date was about 25%, and the returns varied widely from -3.6% to -41%, she said.
Funds that allocate assets based on the assumption that investors will continue to maintain part of their investments after retirement need to be better disclosed to investors, Ms. Schapiro said.
Target date funds intended for use in Section 529 college savings plans need to more closely track the target date, she added and the SEC is looking at whether the same target date funds are used in both retirement and college savings plans.
Additional controls may be imposed by the SEC on the use of particular target dates in a fund’s name, which may mislead investors, Ms. Schapiro said. She challenged fund directors to review target date fund asset allocations and investments to make sure they are consistent with investor expectations.
The SEC staff is working with the Department of Labor on the issue, and Senate Special Committee on Aging Herb Kohl, D-Wis., is looking at the issue as well, she added.
Permitting institutional shareholders to nominating company directors will be taken up soon by the SEC as well, Ms. Schapiro said.
“Enabling investors to participate meaningfully in the nomination of directors through proxy access will foster a sense of enhanced legitimacy to the director-nomination process and promote investor confidence,” she said in her speech.
Ms. Schapiro downplayed the possibility that unions or public pensions will be able to have undue influence over company boards. Most other developed countries have allowed greater proxy access for investors, she noted.
