Why Mutual Fund Fee Reform Misses the Mark

New rules on 12b-1 fees won’t change much. However, another proposal could dramatically cut what you pay to buy certain funds.

It has taken the Securities and Exchange Commission decades to get around to addressing 12b-1 fees, those arcane charges that show up as part of your mutual fund’s expense ratio but that are often used as a substitute for an upfront sales load. However, it will take you just minutes to see how the SEC’s proposed overhaul of these fees falls short.

To be sure, the SEC’s proposed rule on the charges is infused with good intentions. It would require funds to better disclose how they use 12b-1 fees, which are often called “marketing” or “distribution” expenses but are in part paid to brokers as an ongoing sales commission. And it would limit the total an investor could pay in these fees over time in a given fund.

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Elizabeth Leary
Contributing Editor, Kiplinger's Personal Finance
Elizabeth Leary (née Ody) first joined Kiplinger in 2006 as a reporter, and has held various positions on staff and as a contributor in the years since. Her writing has also appeared in Barron's, BloombergBusinessweek, The Washington Post and other outlets.