As industry watchers debate the merits of proposed changes to the rules governing mutual fund fees, some fee-free funds are generating head-turning returns – and they won’t have to make big changes to comply.
The Securities and Exchange Commission has proposed a new set of rules to limit the onerous and sometimes vague fees that have raised the ire of many investors. The so-called 12b-1 fee is traditionally described as a marketing and distribution fee, although a large portion goes to financial intermediaries (like brokers, financial planners and advisors), who recommend and sell the funds.
The fee is named for Rule 12b-1, which was adopted by the Security and Exchange Commission in 1980 and allows mutual fund companies to draw from their assets to pay those investing professionals.
Different share classes charge different 12b-1 fees. Class A shares typically charge an upfront sales load and no 12b-1 fee, or a minimal one. Class B shares allow investors to skip the load but charge a ‘back-end’ load if shares are sold before a cutoff date, as well as a 12b-1. Class C