Securities regulators will review the $11 billion distribution and service fees charged by many mutual funds. Yesterday the Securities and Exchange Commission said it will hold a roundtable discussion on June 19 to discuss the fees.
Often referred to as “12b-1 fees” after the Investment Company Act rule that allows them, the fees were instituted in 1980 as a temporary measure to compensate fund managers for the costs of marketing the fees and attracting new investment. The idea was that mutual fund investors would benefit from economies of scale if fund managers could use part of the fund assets to build larger funds.
Now the fees have become a regular part of the mutual fund business, with even some closed-end funds—which are closed to new investment dollars—charging 12b-1 fees. SEC Commissioner Chris Cox says that the fees need to be reviewed because their use has departed widely from the original purpose.
"When the Commission adopted Rule 12b-1 more than a quarter century ago, the idea was that 12b-1 fees would be a temporary solution to address specific distribution problems, as they arose. But today's uses of 12b-1 fees have strayed from the original purposes underlying the rule, and it is time for a thorough re-evaluation," said SEC Chairman Christopher Cox.
After the jump, read the full SEC release regarding the fees.
COMMISSION ANNOUNCES ROUNDTABLE DISCUSSION REGARDING RULE 12b-1
On May 29, the Securities and Exchange Commission announced that it
will host a roundtable discussion next month on issues surrounding
Rule 12b 1 under the Investment Company Act of 1940. Rule 12b-1
permits mutual funds to use fund assets to finance the distribution of
The roundtable will take place on June 19, 2007, and will consist of
* the historical circumstances that led to the promulgation of
Rule 12b-1, and the original intended purpose of the rule;
* the evolution of the uses of Rule 12b-1 and the rule's current
role in fund distribution practices;
* the costs and benefits of the current use of Rule 12b-1; and
* the options for reform or rescission of Rule 12b-1.
"When the Commission adopted Rule 12b-1 more than a quarter century
ago, the idea was that 12b-1 fees would be a temporary solution to
address specific distribution problems, as they arose. But today's
uses of 12b-1 fees have strayed from the original purposes underlying
the rule, and it is time for a thorough re-evaluation," said SEC
Chairman Christopher Cox. "This roundtable will help us review current
uses of 12b-1 fees, how those fees impact retail investors, and the
interests and concerns of independent directors, who must approve 12b-
1 plans. The roundtable also will help us identify and evaluate the
possibilities for reforming Rule 12b-1."
A final agenda and list of participants and moderators will be
published closer to the date of the roundtable. The roundtable will
begin at 9:00 a.m., e.d.t., and will be held in the Auditorium at the
Commission's headquarters at 100 F Street, N.E., Washington, D.C. The
roundtable will be open to the public with seating on a first-come,
first-served basis. Doors will open at 8:30 a.m., and visitors will be
subject to security checks. The roundtable discussion also will be
available via webcast on the Commission's Web site at www.sec.gov.
The Commission welcomes feedback regarding any of the topics to be
addressed at the roundtable, and we will provide a list of specific
issues we would like the public to address. The information that is
submitted will become part of the public record of the roundtable.
Submissions to the Commission may be provided by any of the following
* Use the Commission's Internet submission form; or
* Send an e-mail to firstname.lastname@example.org.
* Send paper submissions in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, 100 F Street,
N.E., Washington, DC 20549-1090.
All submissions should refer to File Number 4-538. This file number
should be included on the subject line if e-mail is used. To help
process and review your submissions more efficiently, please use only
one method. The Commission will post all submissions on the
Commission's Web site at www.sec.gov.
Please note that all submissions received will be posted without
change; the SEC does not edit personal identifying information from
submissions. You should submit only information that you wish to make
available publicly. (Press Rel. 2007-106)