The Securities and Exchange Commission (SEC) said Wednesday, July 21, it planned to do away with 12b-1 fees as they are currently structured.
SEC Chairman Mary Schapiro said Wednesday that the regulator’s proposed rule on 12b-1 fees would “impose limits on the cumulative sales charge–or sales load–that an investor pays,” and “would eliminate the so-called ‘hidden sales charges’ that 12b-1 fees can represent by, for the first time, disclosing and regulating these fees as sales charges.” Broker/dealers under the proposed rule, she said, would also be able to compete for investors by setting their own mutual fund sales loads rather than at a uniform fee set by the fund.
“Rather than sales loads set by the fund in its prospectus, broker/dealers could compete with others–thereby likely leading to lower charges,” Schapiro said. “I believe that mutual fund investors, like all consumers, want the ability to engage in comparative shopping based on price.”
The SEC proposal is out for a 90-day comment period.
Andrew “Buddy” Donohue, director of the SEC’s Office of Investment Management, added that the new 12b-1 rules “would give broker/dealers the option to price the [mutual fund's] sales charge based on the quality of the services the [B/D] is providing.”