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Our Take Blog

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Our Take Blog
SEC Proposes a Complete Overhaul of Fund Distribution Fees

SEC Proposes a Complete Overhaul of Fund Distribution Fees

The SEC has issued a proposal to eliminate Rule 12b-1 fees and replace them with a 25 basis point marketing and service fee and a limited “ongoing sales charge.” In place of Rule 12b-1, the SEC has proposed a new Rule 12b-2 that would allow a 25 basis point marketing and service fee that could be used for a wide range of purposes including the payment of supermarket fees. To charge an asset based fee in excess of 25 basis points, a fund would have to implement an “ongoing sales charge” which could be no greater than the highest front-end load on another class of shares within the same family. If no such other class exists, the ongoing sales charge would be capped at 6.25%. Funds would have to track each shareholder investment and, upon reaching the maximum charge, either convert to a different class or cease charging the fee. The ongoing sales charge would be treated as a load and would not require Board approval. However, an existing class could not implement an ongoing sales charge under any circumstances. The Rule proposal also allows for intermediary-based load variation and enhanced confirmation requirements.


OUR TAKE: We expect a great deal of discussion and debate over the proposal before the SEC adopts it. The fund industry will likely have concerns about the tracking of the ongoing sales charge and the confirmation requirements.

http://www.sec.gov/rules/proposed/2010/33-9128.pdf
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