Both the Securities Industry and Financial Markets Association and the Investment Company Institute sent letters to the Securities and Exchange Commission urging it not to discontinue 12b-1 fees, which, the ICI estimates, are used by 70% of funds today. SIFMA, representing the securities and bond industry, said that eliminating the fees would harm investors, since it helps fund critical investment guidance from financial advisers, and would also curtail innovation and competition in the marketplace. SIFMA did concede, however, that such fees should be properly disclosed to investors. “We disagree with the notion set forth that Rule 12b-1 was intended to be a temporary solution, or the notion that the rule did not contemplate payments to dealers,” SIFMA maintained, pointing to the SEC’s recent June 19 roundtable on the subject. SIFMA maintained that panelists, many of whom were involved in drafting the rule, “uniformly confirmed that Rule 12b-1 was never meant to be a temporary solution.” The group said 12b-1 fees support “necessary administrative and investment services for fund shareholders” that are largely borne by intermediaries rather than fund companies. SIFMA also said that the nine factors that the SEC set forth for fund boards to consider when deciding whether to levy 12b-1 fees have become outdated. For its part, the ICI also said that 12b-1 fees are “integral to the structure of the mutual fund industry and to the delivery of advice and other services that fund investors consider absolutely essential,” most notably advice from financial intermediaries. The ICI suggested that rather than naming the fees after a reference to an SEC rule, the fees should be renamed. And while the ICI called for better disclosure of the fees to investors, the trade group said, however, that if the SEC were to require funds to disclose such fees at the point of sale but not impose similar requirements on other types of investment products, it “could encourage intermediaries to steer clients to alternative investments that do not offer the same level of protection, diversification and liquidity as funds.” 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.
