Should the SEC Rid Mutual Fund Investors of 12b-1 Fees?

Abstract:     
The stated and objective empirical findings in this study (and others) are generally consistent. There is no evidence that mutual fund shareholders benefit from Rule 12b-1 plans, which provide a serious conflict of interest.

The promise that 12b-1 fees would be used to increase mutual fund assets and thereby lower fund shareholder expenses appears to have been a cynical industry effort to gain SEC approval, while the intended beneficiary was (and is) fund management - and what a bonanza it has been.

The opportunity to prohibit 12b-1 fees, as both abusive and costly conflicts of interest to mutual fund shareholders, will never be better than now. The major question is not so much whether Chairman Cox is determined to prohibit or drastically change 12b-1 fees for the better, but, rather, if he will be able to prevail over the opposition of the industry's supporters in Washington.

Keywords: mutual funds, 12b-1 fees, conflict of interest, regulation

JEL Classifications: G2, G23, G28

Working Paper Series