From its start in 1980, the 12b-1 fee was controversial. Here was a distribution charge assessed against current mutual fund investors that the fund company could then use to market the fund to new investors. In other words, the mutual fund used investor dollars rather than its own money to grow the fund’s assets under management.

In theory, using the fund investor’s own money to market the fund company’s products was supposed to benefit the investor. Several decades of subsequent analysis, however, show that while mutual funds that charge 12b-1 fees are successful at incentivizing salespeople to bring in more AUM, the 12b-1 fee isn’t living up to its promise of helping scale up and bring down the expense ratio as the mutual fund grows.

Register or login for access to this item and much more

All Financial Planning content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access