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Regulation and Compliance > Federal Regulation > SEC

Groups File Petition to End SEC Crackdown on 12b-1 Fees

By Melanie Waddell

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Four industry and public interest groups filed a petition of rulemaking with the Securities and Exchange Commission Wednesday to end what they see as the agency’s “backdoor regulation” of 12b-1-fees.

“It is time for the SEC to stop its troubling, ongoing trend of backdoor regulation, or regulation by enforcement,” said Dale Brown, president and CEO of the Financial Services Institute, in a statement.

“Financial services firms and financial advisors deserve to know the rules of the regulatory road on which they operate and be allowed sufficient time to comply with any changes. It is for this reason that Congress established the requirements of the rulemaking process, and we urge the SEC to address our concerns with regulation by enforcement as called for in the petition.”

FSI is joined by the American Securities Association (ASA), the Competitive Enterprise Institute (CEI), and the New Civil Liberties Alliance in filing the petition for a rulemaking.

“When the stay-at-home orders are finally lifted, American businesses will need to know that the law is what is says, and not what the SEC, years later, decides unilaterally what it should have been,” the groups said.

The groups maintain that the SEC has waged a “thirty-year effort to effectively outlaw Rule 12b-1 fees, and the amnesty program which followed. For decades, mutual funds have used 12b-1 fees to compensate financial advisers for ongoing sales and marketing assistance. And (despite the SEC’s efforts to the contrary) no statute or rule changed the manner in which those fees were disclosed.”

The SEC, the groups said, “has recently turned to ‘guidance,’ coupled with ‘voluntary’ self-reporting programs for those in ‘violation’ of the ‘guidance,’ and punitive enforcement actions for past conduct for those who didn’t turn themselves in.”

These measures have been undertaken without the notice or public participation that Congress requires for regulatory changes of this type, the groups argue.

Helgi Walker, a partner at Gibson Dunn and lead counsel on the petition, stated that “It is time for the SEC to follow the rulemaking procedures that the people’s elected representatives in Congress have prescribed. Investment advisers, like all Americans, have a right to be bound only by duly enacted statutes and the regulations lawfully promulgated under them—and, most importantly, to know what the law is before the SEC brings its enormous enforcement arsenal to bear.”

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Melanie Waddell

@Think_MelanieW

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