On Tuesday, NAPFA
-– the National Association of Personal Financial Advisors –- weighed in on the debate surrounding the 'appropriateness' of 12b-1 fees, placing itself firmly in SEC Chairman Mary Schapiro's camp.
As NAPFA sees it, numerous mutual fund companies are distorting the fees' original purpose in favor of accruing profits at the expense of the investor –- a sentiment that underlies Schapiro's recent statement to the Wall Street Journal that, “We must critically rethink how 12b-1 fees are used and whether they continue to be appropriate.”
“The purpose of these fees is to offset the marketing and distribution costs incurred by mutual fund companies. However, when you peel back the layers you see that some mutual fund companies are making a profit on 12b-1fees,” stated NAPFA chairman William T. Baldwin
NAPFA originally expressed its views in an open letter to the SEC in July 2007 that called for greater transparency and scrutiny of the fees' usage. Specifically, the association stressed the need for 'enhanced descriptors and disclosures of 12b-1 fees' intended to bolster consumers' understanding of the role of 12b-1 fees in mutual fund investing. NAPFA also emphasized the need for 'point-of-recommendation and point-of-sale disclosures' to help advisors and brokers accurately disclose all expenses and hidden costs of specific pooled investment vehicles, such as mutual funds, at the time of sale.
“Fees associated with investments must be treated like an 'open book' that is easily understood by all potential investors. Without clearer disclosure, consumers may not be able to make the most educated decision possible,” Baldwin stated.
For her part, Schapiro was even more outspoken, telling attendees at the Consumer Federation of America's 21^st annual Financial Services Conference on December 3, “There is a need for more fundamental change than merely disclosure reforms and a name change...12b-1 reform is an issue that deserves and will receive SEC attention.”
Bets are on that the SEC will look to tackle 12b-1 fees in 2010 and that the fate of the fees may become more clear next year.
Company Press Release
Arlington Heights, IL (December 22, 2009) – The National Association of Personal Financial Advisors (NAPFA),
the country’s leading professional association of Fee-Only financial advisors, applauds Securities and Exchange
Commission Chairman Mary Schapiro for her recent comments about reviewing the appropriateness of 12b-1
Fees in mutual funds.
In a Wall Street Journal article titled “Will '12b-1' Fees Ever Stop Bugging Investors?” (Jason Zweig, December
19, 2009), Chairman Schapiro is quoted as saying, /“We must critically rethink how 12b-1 fees are used and/
/whether they continue to be appropriate.” /NAPFA agrees.
“The purpose of these fees is to offset the marketing and distribution costs incurred by mutual fund companies.
However, when you peel back the layers you see that some mutual fund companies are making a profit on 12b-1
fees,” said NAPFA Chairman William T. Baldwin, JD.
In an Opinion Letter to the SEC in July 2007, NAPFA commented on the use of 12b-1 Fees and outlined specific
recommendations for creating greater transparency. In the Opinion Letter, NAPFA pointed to two main areas of
concern. First is the need for *Enhanced Descriptors and Disclosures of 12b-1 Fees *to help consumers
understand the role 12b-1 fees play in mutual fund investing. NAPFA recommended the following:
• Rename 12b-1 fees to be more precise and descriptive (i.e. “brokerage firm compensation” or “brokerage
firm reimbursement for account maintenance expenses”)
• Disclosures of a mutual fund’s “total fees and costs,” including 12b-1 fees, should be reflected in
quarterly account statements
Second is the need for *Point-Of-Recommendation and Point-Of-Sale Disclosures *to help advisors and brokers
fully disclose the expenses and “hidden costs” of pooled investment vehicles at the time of recommendation and
the time of sale.
“Fees associated with investments must be treated like an ‘open book’ that is easily understood by all potential
investors. Without clearer disclosure, consumers may not be able to make the most educated decision possible,”
Members of the media who would like to discuss the 12b-1 Fees and NAPFA’s stance on the issue can contact
Benjamin Lewis at 301-963-7555 or Benjamin.Lewis@perceptiononline.com.
Since 1983, The National Association of Personal Financial Advisors (NAPFA) has provided Fee-Only financial
planners across the country with some of the strictest guidelines possible for professional competency,
comprehensive financial planning, and Fee-Only compensation. With more than 2,100 members across the
country, NAPFA has become the leading professional association in the United States dedicated to the
advancement of Fee-Only financial planning.
For more information on NAPFA, please visit www.napfa.org .
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