Recovering Losses caused by Investment Misconduct

SEC Proposes to Improve Regulation and Disclosure of Mutual Funds' "Ongoing Sales Charges"

In 2009, investors paid $9.5 billion in 12b-1 fees, according to a July 21 WSJ article. In 2007, the fees brought in over $13 billion.

As discussed here, the SEC has repeatedly voiced concerns about investors' understanding of these fees. In a July 21 Press Release detailing an SEC proposal to limit funds' 12b-1 fees by improving regulation and disclosures to investors, SEC Chairman Mary L. Schapiro focuses again on the problem:

"Despite paying billions of dollars, many investors do not understand what 12b-1 fees are, and it's likely that some don't even know that these fees are being deducted from their funds or who they are ultimately compensating. Our proposals would replace rule 12b-1 with new rules designed to enhance clarity, fairness and competition when investors buy mutual funds."

12b-1 fees are distribution and/or service fees that are considered an annual marketing expense of a mutual fund. The fees, normally 0.25-1% of a fund's net assets, are used (in part) to compensate brokers and others who sell fund shares.

According to the SEC, the proposed rules would protect investors in four ways, including: by limiting fund sales charges, by improving transparency of fees, by encouraging retail price competition, and by revising fund director oversight duties.

The SEC's proposal provides for a transition period for the new rules and a 90-day public comment period, according to the press release.

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