29 July, 2010 - The Securities and Exchange Commission wants to overhaul the ongoing sales charges that mutual fund investors pay, called 12b-1 fees. The fees are part of the overall costs investors pay, reflected in a fund's expense ratio — its cost of doing business, expressed as a percentage of assets.
The 12b-1 fees are separate from any one-time sales charge, known as a load, that investors may pay up front when buying a fund, or after selling their shares. Funds can use 12b-1 fees for a variety of purposes, including paying commissions to brokers who sell funds; fund marketing; and providing investment advice and mailing fund disclosures to shareholders.
The five SEC commissioners on July 21 voted unanimously in favor of 12b-1 changes recommended by the agency's staff. After a 90-day public comment period, the SEC will vote on the final changes.
Here's a look at the key changes in the proposal, which runs 278 pages:
—Broker competition: Brokers would be allowed to compete on pricing, rather than being stuck with the commission that the fund company sets for them. Brokers could offer varying levels of service, geared toward fee levels.
—Fee disclosure: Funds would have to clearly show investors the ongoing sales charges they may be paying, and separate them from fees covering marketing and shareholder services. Disclosures must include totals for "ongoing sales charges" and any "marketing and service" fees.
—Fee caps: Marketing and service fees would be capped at 0.25 percent of the fund's assets per year. Anything above that would be considered a sales charge. Ongoing sales charges would be capped so that the total paid over several years couldn't exceed the amount the investor could have paid had they chosen to pay upfront. For example, a fund that charges a 4 percent sales load could deduct no more than 4 percent over time from an investor. Under current rules, long-term investors who buy class C shares can sometimes end up paying more, essentially subsidizing short-term investors.
source: www.cnbc.com
29 July, 2010 - The Securities and Exchange Commission wants to overhaul the ongoing sales charges that mutual fund investors pay, called 12b-1 fees. The fees are part of the overall costs investors pay, reflected in a fund's expense ratio — its cost of doing business, expressed as a percentage of assets.
The 12b-1 fees are separate from any one-time sales charge, known as a load, that investors may pay up front when buying a fund, or after selling their shares. Funds can use 12b-1 fees for a variety of purposes, including paying commissions to brokers who sell funds; fund marketing; and providing investment advice and mailing fund disclosures to shareholders.
The five SEC commissioners on July 21 voted unanimously in favor of 12b-1 changes recommended by the agency's staff. After a 90-day public comment period, the SEC will vote on the final changes.
Here's a look at the key changes in the proposal, which runs 278 pages:
—Broker competition: Brokers would be allowed to compete on pricing, rather than being stuck with the commission that the fund company sets for them. Brokers could offer varying levels of service, geared toward fee levels.
—Fee disclosure: Funds would have to clearly show investors the ongoing sales charges they may be paying, and separate them from fees covering marketing and shareholder services. Disclosures must include totals for "ongoing sales charges" and any "marketing and service" fees.
—Fee caps: Marketing and service fees would be capped at 0.25 percent of the fund's assets per year. Anything above that would be considered a sales charge. Ongoing sales charges would be capped so that the total paid over several years couldn't exceed the amount the investor could have paid had they chosen to pay upfront. For example, a fund that charges a 4 percent sales load could deduct no more than 4 percent over time from an investor. Under current rules, long-term investors who buy class C shares can sometimes end up paying more, essentially subsidizing short-term investors.
source: www.cnbc.com
