Rule 12b-1 under the Investment Company Act of 1940 regulates the ability of mutual funds to use their own assets to pay for the distribution of their shares. The rule is controversial, on the one hand, because 12b-1 fees, as they are called, can be seen as a benefit to a fund’s adviser, whose compensation is based on the size of the fund. On the other hand, if advisers reduce their fees as the fund grows, all fund shareholders receive some benefit from increased share sales. Also, to the extent that 12b-1 fees are used to compensate financial advisers who sell fund shares, they can be seen as simply providing an alternative way--instead of an upfront sales charge--for investors to pay for the initial and ongoing services they receive from their advisers. Securities and Exchange Commission (SEC) chairman Christopher Cox has expressed reservations about the growth of 12b-1 fees, and the SEC recently held a roundtable discussion that was intended to assist the agency in deciding whether to revise the rule or perhaps even to eliminate it.
Speakers at this conference, in advance of any action by the SEC, will consider whether Rule 12b-1 serves a useful purpose and should be retained, or whether it should instead be revised or repealed.
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Sunday, November 22, 2009
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