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SEC to Propose 12b-1 Reforms July 21

The SEC has announced that at an open meeting on July 21 it will consider proposing amendments to reform rules governing distribution fees paid by mutual funds.  In particular, the Commission will consider:

. . .  a recommendation to propose for public comment a new rule and rule and form amendments under the Investment Company Act of 1940, the Securities Act of 1933, and the Securities Exchange Act of 1934, to reform the regulation of distribution fees paid by registered open-end management investment companies ("funds"). The recommended proposal would provide a new framework for how funds currently use their assets to pay for sales and distribution expenses pursuant to rule 12b-1 under the Investment Company Act, and would revise disclosure requirements for transaction confirmations pursuant to rule 10b-10 under the Securities Exchange Act.

The Commission has made no secret of its interest in reforming 12b-1 fees, and SEC Chair Mary Schapiro made it a priority of the Division of Investment Management.  As she stated at this year's SEC Speaks event:  

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.

The July 21 open meeting is scheduled to begin at 10:00AM, and be held at the SEC's Washington, DC headquarters, located at 100 F Street NE.  The meeting is open to the public on a first come, first served basis.  The meeting will also be webcast via a link on the Commission's website,

The full text of the Commission's Sunshine Act Notice is available at: