We are officially in the midst of the dog days of summer. And while that phrase may conjure images of lazy yawns on a front porch and the smell of sunscreen and dried-up lawns, the Securities and Exchange Commission is as busy as ever.
Riding the current of a flurry of regulatory activity, the SEC, on July 21, voted unanimously to propose a set of rules that would place new limits on the use of 12b-1 distribution fee provisions under the Investment Company Act of 1940.
The SEC intends to apply the proposed changes to funds in variable annuity separate accounts as well as mutual funds.
Is what we’ve got here a failure to communicate? Some think so, but financial professionals are wary to chalk the proposed rule changes up to a full disclosure debate.
“I have no problem with full disclosure and neither due any of my colleagues, disclosure of the use of funds is contained in all mutual fund companies prospectuses.” Said a financial professional who wished to speak off the record.
The issue seems to be the evolution of the use of 12b-1 fees. Initially the fees were to be used to pay for broker dealers and fund promotional and marketing activities. But the utilization of the fees began to be used to compensate fund intermediaries for sales instead of supplementing promotional costs.