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Schapiro: Commission to Tackle 12b-1 Fees in 2010

At last week's SEC Speaks 2010, SEC Chairman Mary Schapiro as part of her opening address, announced that reforms to 12b-1 fees are once again on the Commission's agenda.  Though Schapiro mentioned 12b-1 fees as part of her discussion of disclosure reforms, and in particular, point-of-sale disclosures to investors, her comments about the fees suggests the reforms she has in mind extend well beyond simply explaining 12b-1 fees to investors, but rather, a re-examination of the purposes and uses of 12b-1 fees as well.

12(b)-1 Fees: Directly related to the concept of point of sale, is the issue of 12b-1 fees. These are fees that are automatically deducted from mutual funds to compensate securities professionals for sales and services.The problem is that investors may have no idea these fees are being deducted, what services they are paying for, or who they are ultimately compensating. That's why I believe we need to critically rethink how 12b-1 fees are used and whether they continue to be appropriate.

This is no small matter considering these fees amounted to more than $13 billion in 2008. Of course, in 1980 when these fees were first permitted, they may have made sense — but after 30 years of growth and change in the mutual fund market, it is past the time to reassess their need and their effectiveness.

So, I have asked the staff for a recommendation on 12b-1 fees for Commission consideration in 2010.

At a recent breakfast discussion at the Forum's Directors' Institute, Investment Management Division Director, Andrew J. Donohue also said that 12b-1 fees were a priority in his division this year.  Schapiro's remarks make clear the Commission's intention to pursue reforms to 12b-1 fees this year.

The full text of Chairman Schapiro's address at SEC Speaks is available at: