The Investment Company Institute Monday said it strongly supports the SEC’s pending proposal to ban directed brokerage arrangements and amend Rule 12b-1 to prohibit fund companies from using these fees to pay commissions to brokers who sell their funds.

"Prohibiting the allocation of brokerage based upon sales considerations is warranted because the practice of directed brokerage can give rise to the appearance of conflicts of interest," Amy Lancellotta, acting ICI general counsel, said in a letter to the SEC.

Likewise, FundDemocracy.com and three consumer groups, including the Consumer Federation of America, also praised the pending legislation.

"The Commission is to be congratulated for taking this long-overdue step to end a practice that both helps drive up mutual fund portfolio transaction costs and encourages brokers to recommend funds based on factors that are not in the best interest of the client," the groups said. "If adopted without weakening amendments, the rule should help to eliminate one of the more egregious conflicts of interest biasing fund sales."

The groups made issued their remarks in time for the May 10 deadline for comment letters.

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