Calling 12b-1 fees a wolf in sheep’s clothing, St. Louis Post-Dispatch columnist David Nicklaus doubts that the
Most of the $11 billion or so that investors pay each year in 12b-1 fees is used to pay brokers via revenue-sharing agreements, rather than for marketing and advertising to raise a fund’s assets, and, therefore, bring lower fees through economies of scale.
When the SEC first permitted 12b-1 fees in 1980, the fund industry was losing assets due to a prolonged bear market throughout the 1970s. But since then, the industry has misused the fees for what, Niklaus said, are essentially “kickbacks.”
“This insidious fee lets a fund advertise itself as ‘no load’ while still using investors’ money to pay brokers for their sales efforts,” he notes. “Inside a 401(k) plan, it also lets the fund pay various middlemen with investors’ money.”
Noting that the SEC has repeatedly talked about doing away with 12b-1 fees over the years, Mercer Bullard, founder of