COX SUPPORTS AND PREDICTS REPEAL OF RULE 12b-1
In a recent speech, SEC Chairman Christopher Cox said that he supports “scrapping” Rule 12b-1. He indicated that “repeal [of Rule 12b-1] is very much on the table.” Noting that 90% of 12b-1 fees are used to compensate sales and shareholder servicing, then “that is how those payments should be treated. And that is how they should be disclosed.” He anticipates a staff recommendation this summer that will involve a new distribution and disclosure regime in place of the Rule.
OUR TAKE: We anticipate that the SEC may still allow asset-based distribution fees but will require them to be called loads or sales charges. One significant open question is whether the SEC will continue to allow funds to assess distribution charges across the entire fund shareholder base or require an allocation of distribution charges to specific shareholders.