Cap on Class C fees in offing

A cap on fees charged on Class C mutual fund shares looks like it will make its way into a proposed rule regarding 12(b)-1 fees. Officials at the Securities and Exchange Commission said they expect to make their recommendation public sometime by summer. Based on discussions with the regulator, the Investment Company Institute, the powerful Washington-based mutual fund trade group, believes the SEC will propose that investors in C shares pay no more than investors in Class A shares, said Karrie McMillan, general counsel for the ICI. That could end up being an administrative nightmare for fund companies because they would have to come up with a “conversion rate” for the different share classes, she said. A review of rule 12(b)-1 by the SEC has been underway for some time. The amount of 12(b)-1 fees that shareholders pay through mutual funds rose from a few million dollars in the early 1980s to almost $12 billion in 2006, according to the ICI. Critics, however, contend the primary use of 12(b)-1 fees has shifted from paying for fund marketing, to being used primarily as a sales compensation vehicle. Ms. McMillan discussed the ICI’s concerns about the SEC’s yet-to-be released rule proposal with nvestmentNews Tuesday at the Mutual Funds and Investment Management Conference in Phoenix, organized by the ICI. Officials at the SEC could not be reached for comment.