By Frederick P. Gabriel Jr.
The Securities and Exchange Commission is taking a close look at 12(b)-1 fees — again.
When first introduced in 1980, 12(b)-1 fees were supposed to be a temporary measure to help small mutual funds recoup costs associated with selling shares, such as printing, mailing and advertising. Today, however, nearly two-thirds of all funds charge such fees and use the billions of dollars collected to defray costs associated with selling through intermediaries.
The use, or misuse, of 12(b)-1 fees has been on the SEC's radar screen for a couple of years. But now that the spotlight in the mutual fund trading scandal has shifted to fund fees, the commission — under the direction of Chairman William H. Donaldson — is likely to put its words into action.
"We're looking at 12(b)-1," SEC Commissioner Harvey Goldschmid said Jan. 24 at a gathering in Oxford, Miss., of regulators, shareholder advocates and fund company executives. "All I can tell you is that when you are looking at something, it means running the spectrum from elimination to modification."
Among those participating in the Mutual Fund Summit were John C. Bogle, the founder and former president of The Vanguard Group Inc. in Malvern, Pa.; Paul G. Haaga Jr., chairman of the Washington-based Investment Company Institute, and an executive vice president and director at Los Angeles-based Capital Research and Management Co.; and Don Phillips, a managing director at Morningstar Inc., a mutual fund research company in Chicago.
Shareholder advocacy group Fund Democracy Inc. and the University of Mississippi law school, both based in Oxford, sponsored the two-hour meeting.