The ICI is making the case for why revenue sharing is not hurting fund investors, but is anyone listening? Thursday, the fund industry trade group released a study on how mutual funds use 12b-1 fees. For all the impact, the report had on the financial press it may as well have sealed the report in a bottle and set it adrift.

Beyond the press release there was nary about word on the study in the morning papers. Yet, those few who read the report may have concluded that the practice is not negative for shareholders as some critics claim and that the fees are not being used for what people thought they were for.

Just two percent of all 12b-1 fees are used to pay for promotion and advertising, according to the ICI's research. Those marketing fees are what many people believe the 12b-1 fee is for. Another six percent is used as payments to fund underwriters.

The overwhelming majority of the fees are paying more directly for distribution and for others to provide shareholder services work.

Shareholder services account for 52 cents of every 12b-1 dollar spent.

Meanwhile, 40 cents goes to pay financial advisors. That use of 12b-1 fees is a shift in practice from firms paying advisors with straight commissions, the ICI report noted. Average commissions have dropped to five percent from 8 percent in 1980.

That change in how compensation was paid also left the industry uniquely vulnerable. Indeed, the report underlines the squeeze that hit the industry when the stock market collapsed in 2000 and 2001.

Total annual 12b-1 fees collected peaked at $11.0 billion in 2000, only to fall to $8.9 billion in 2002. That is a decline of 19.1 percent in annual fees collected in just two years. Those fees rebounded with the stock market, reaching $10.4 billion in 2004.

Prior to the stock market swoon, fees had been growing in a classic hockey stick pattern. From 1982 when they were roughly $10 million, they first passed $1 billion in 1990, $2 in 1993, $4 billion in 1996 and $8 billion in 1999.  

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