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.

Subscribe to Kiplinger’s Personal Finance

Be a smarter, better informed investor.

Save up to 74%

Sign up for Kiplinger’s Free E-Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

Sign up

To continue reading this article
please register for free

This is different from signing in to your print subscription

Why am I seeing this? Find out more here

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.