Elimination of 12b-1 Fees: Good News & Bad

If the Securities and Exchange Commission decides to eliminate 12b-1 fees, that would mean both good news and bad news for investors, Seattle Times reports. The good news is that the industry wouldn’t be able to misuse an antiquated fee to pay financial advisers with shareholders assets instead of increasing assets in the fund. The bad news is that fund companies would probably increase other fees to compensate. “The elimination of 12b-1 fees will drive up management fees, unquestionably,” said Mercer Bullard, founder of FundDemocracy.com. According to Morningstar, the majority of mutual funds charge 12b-1 fees, earning the industry $10 billion last year. SEC Chairman Christopher Cox has likened 12b-1 fees to charging cable TV viewers and also running advertisements. “There doesn’t appear to be a whole lot of evidence that 12b-1 fees are anything but a net drain on shareholder wealth,” said Edward O’Neal, an assistant professor of finance at Wake Forest University. The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.