NAIFA Tells SEC: Keep 12b-1 Fees

“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.

Sanders questions a proposal to pay registered representatives for ongoing services out of the fund managers fee, rather than from fund assets. This proposal, he says, would significantly impact the economic well-being of registered representatives.

“Our concern is that removing fund assets from the equation and leaving it up to fund managers to pay such fees out of their own pockets will lead to reduction or elimination of compensation for ongoing services,” Sanders says.

Moreover, he adds, payment of fees directly by fund managers rather than out of fund assets could lead to the very conflicts of interest the SEC is seeking to eliminate.

In order to encourage registered representatives to sell their funds, Sanders says, fund managers could adjust the fees paid for providing ongoing services based on fund sales. “This could entice registered representatives to recommend one fund over another based on nothing more than the amount of the service fee,” he says.

Rather than eliminating 12b-1 fees, Sanders says, NAIFA believes clearer, more robust disclosure is the best way to ensure that investors fully understand the fees and expenses charged in connection with mutual fund ownership.

Reproduced from National Underwriter Edition, May 14, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.