NU Online News Service, May 12, 2004, 5:39 p.m. EDT, Washington – Paying fees to registered representatives for ongoing service to clients is a legitimate use of mutual fund assets and should not be prohibited.[@@]
The National Association of Insurance and Financial Advisors, Falls Church, Va., makes that case in comments filed with the U.S. Securities and Exchange Commission.
NAIFA argues in the comments that elimination of certain brokerage commissions, called 12b-1 fees, would hurt fund investors.
The issue involves an SEC proposal to prohibit the payment of 12b-1 fees as a means to combat directed brokerage abuses. The 12b-1 fees are paid to registered representatives to finance distribution of mutual fund shares.
But NAIFA Senior Counsel Gary A. Sanders says that while NAIFA supports efforts to eliminate conflicts of interest, 12b-1 fees constitute legitimate and appropriate compensation for providing ongoing services to mutual fund owners.
Sanders notes that more than one-half of NAIFA’s members are registered representatives who service mutual funds. They provide ongoing service to mutual funds beyond the commissions paid for the sale of fund shares, he says.
“In exchange for a small annual payment, investors have access to a financial services expert to answer their questions and address their concerns,” Sanders says.
Moreover, he says, these services are provided to investors in both closed and open funds. Thus, Sanders says, even if a fund is not accepting new investors, the services provided by registered representatives are ongoing. The 12b-1 fees paid to registered representatives are legitimate compensation, even if the fund is closed, he says.