SEC Proposes New Rules on Mutual Fund Distribution Fees


Over concerns that investors do not understand or are unaware of 12b-1 fees, the SEC is proposing changes to the regulation of mutual fund distribution fees. In an effort to improve disclosure and regulation, the proposal would replace Rule 12b-1 with new rules designed to enhance transparency, fairness and competition when investors purchase mutual funds.

Although Rule 12b-1 will be replaced, funds may still charge distribution fees. The proposal, however, caps distribution charges at 25 basis points. Further, a fund cannot assess “ongoing sales charges” in excess of what the investor would have paid in a front-end sales charge.

To enhance clarity, the SEC will no longer permit the use of the term “12b-1 fee” and will enhance disclosure by requiring funds to identify and more clearly disclose any “ongoing sales charges” and “marketing and service fees.”

Currently, broker-dealers who sell fund shares must do so under terms set by the fund. However, according to the SEC press release, the new rules will allow funds to sell shares where the broker-dealers set the compensation levels. The change will purportedly increase retail price competition, as broker-dealers could establish their own sales charges.

The proposed measures will also reduce fund director oversight, as directors would no longer be required to explicitly approve and re-approve written distribution plans.

There will be a 90-day comment period following publication in the Federal Register.








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