The SEC hosted a roundtable at which representatives of the mutual fund industry and others were invited to discuss issues related to Rule 12b-1 under the Investment Company Act of 1940 (the "1940 Act"). The Roundtable's goal was to come up with reforms on the almost 30-year-old rule. The Roundtable consisted of a series of panel discussions covering the following topics: (1) the history of Rule 12b-1; (2) modern-day uses of 12b-1 plans to finance the distribution of mutual fund shares; (3) the costs and benefits of 12b-1 plans; and (4) options for reform of Rule 12b-1. Each panel was moderated by a senior member of the SEC staff, and featured representatives from a cross-section of organizations within the industry, including mutual fund companies, broker-dealers and other financial intermediaries, the NASD, independent trustees, investor advocacy organizations, academia and law firms. Rule 12b-1, which was adopted in 1980, permits mutual funds to use fund assets to pay for the marketing of fund shares and other distribution-related activities.

Although no definitive conclusions were reached at the Roundtable, there was a consensus on a number of the topics:

  • Investors would benefit from better, more "transparent" disclosure of both fees paid and services provided for the fees under 12b-1 plans;
  • The nine factors a Board of Directors considers when reviewing a Rule 12b-1 plan should be modernized or eliminated; and
  • 12b-1 fees in the form of service fees are an integral part of the delivery structure of mutual fund shares through a variety of intermediaries.
    Roundtable participants could not agree on whether Rule 12b-1 fees should remain internalized or be externalized (i.e., charged directly to investors).

SEC Chairman Christopher Cox stated that the SEC plans to publish a rule change by the end of the year.