NEW YORK -- Using 12b-1 fees to pay brokers for selling mutual funds has morphed the fund business into a massive marketing machine, a development that has sparked controversy over the best way for fund companies to finance distribution.

In 1980, the Securities and Exchange Commission implemented rule 12b-1, allowing mutual funds to use shareholder assets to defray the costs of marketing and help build economies of scale. But the industry has since experienced extraordinary growth, and the rule has become obscured to the point where it is no longer used for the intent that regulators had envisioned.

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