Of the series of concerns that industry trade groups raised with the Securities and Exchange Commission (SEC) in their comments concerning revisions to mutual fund distribution fees under Rule 12b-1, one issue of considerable importance, the groups say, is that smaller investors would be significantly challenged in their ability to receive access to an advisor. Comments on the SEC's proposal to replace Rule 12b-1 with Rule 12b-2 were due by Nov. 5.
For instance, David Bellaire, general counsel and director of government affairs at the Financial Services Institute (FSI), says FSI polled some of its advisor members and they agreed that the SEC's proposed Rule 12b-2 would result in "unintended consequences" for smaller investors—those with total invested assets in mutual funds of $100,000 or less. "The proposal will reduce access to professional service and support" for these smaller investors, Bellaire says, who advisors say represent a majority of their mutual fund clients.
Under the SEC's proposal, C shares would be subject to a cap. "The ongoing sales charges would be capped at a certain point, which would differ from fund to fund," but the caps would be either the lower of the fully loaded A share mutual fund or 6.25% under the FINRA rule, Bellaire explains. "So positions in C shares would come with an expiration date" that basically indicates when an advisor's compensation would end. The challenge here, Bellaire continues, "is that clients will be put in a position where they have to choose whether they will receive ongoing service and support from their trusted advisor, or whether they will hold on to a mutual fund position, which is appropriate for them, and not get that ongoing support and service."
