The Mutual Fund Directors Forum, a group of independent directors, issued guidelines Tuesday on what boards of directors should consider when reviewing 12b-1 fees. The group agreed with the Securities and Exchange Commission, which recently vowed to review the fees, that the industry has changed considerably since the time when the fees were first instituted.

Specifically, the forum calls on directors to analyze how their funds are distributed and whether use of fund assets to pay for distribution may benefit shareholders by providing greater stability of fund assets and by attracting more assets. They should look at the total distribution budget and how, if they are used, 12b-1 fees fit into that. In addition, directors  should consider extending distribution of their firm’s funds through additional distribution channels and analyze whether their firm’s distribution costs are competitive with those of other companies.

“All directors are focused on taking all necessary steps to ensure that the best interests of their shareholders are being represented when fund assets are used to pay for distribution of shares,” said Susan Ferris Wyderko, executive directof of the Mutual Fund Directors Forum. “But as we state in our best practices, it is clear that Rule12b-1, as it is currently structured, simply does not reflect the current marketplace and cries out for serious review and significant reform.”

When they were first introduced in the 1980s, 12b-1 fees were meant for marketing to help a fund grow assets. Today, however, they are used as an alternative to front-end loads to compensate brokers or, sometimes, for fund administration and shareholder services.

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