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SEC Won't Pursue 12b-1 Reform

By Melanie Waddell

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The Securities and Exchange Commission has decided to no longer pursue this year repealing or modifying Rule 12b-1. At the Investment Company Institute’s 4th Annual Mutual Fund Leadership conference March 23 in Palm Desert, California, Andrew “Buddy” Donohue, director of the SEC’s Division of Investment Management, said he believes that it would be “wise…in the current market environment, for us to defer consideration of rule 12b-1 reform for this year.”

Rather, Donohue said, the Commission “should address a few fundamental matters that directly impact investor protection concerns. For example, we urgently need to reconcile the diverse regulatory regimes governing investment advisors and broker/dealers, and alleviate the uncertainty in the industry emanating from this unresolved matter.”

The Financial Services Institute (FSI) said in a statement that it applauds the SEC’s decision to forego 12b-1 repeal or modifications under the moniker of “reform.” “FSI has long held the position that Rule 12b-1–which authorizes mutual funds to use their assets to pay for marketing and distribution expenses–provides fair compensation to financial advisors for providing middle-class Americans with critical support and guidance in planning to achieve important financial goals ranging from retirement, to college funding for children, to caring for aging parents. At FSI, we have always vigorously advocated for the retention of 12b-1 fees as an essential way of aligning the interests of financial advisors with the interests of their fund shareholder clients.”

FSI said it will continue to diligently monitor any future efforts to modify or repeal Rule 12b-1.

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