Securities regulators are planning to look at a sales fee charged by mutual funds that is now “barely recognizable” from its original form and is unfriendly to investors, the chairman of the Securities and Exchange Commission said Friday.
SEC Chairman Christopher Cox told a group of mutual fund directors that his agency will examine so-called 12b-1 fees, which are used to compensate underwriters and brokers for fund sales, as well as to cover advertising, promotion and mailing fund prospectuses.
“It’s high time for a thorough reevaluation” of the fees, Cox said in a speech to the Mutual Fund Directors Forum.
Fund directors and the agency, Cox said, must tackle “head on” sales commissions that are paid to brokers that masquerade as marketing costs. He said the fee has nearly been transformed from a distribution subsidy to a “sales load in drag” that compensates brokers.
Funds collected $11 billion in 12b-1 fees last year, Cox said.