The Investment Company Institute (“ICI”) submitted a comment letter to the SEC recommending changes to the 12b-1 regulations. In general, the ICI recommended that the SEC retain the Rule’s basic framework, calling it integral to the structure of the mutual fund industry and to the delivery of advice and other services that fund investors consider absolutely essential.
The trade group for the industry recommended improved disclosure to give shareholders a better understanding of the nature of the fee and clarification of the responsibilities of mutual fund boards in approving and overseeing 12b-1 plans.
The ICI urged the SEC to consider improving both the disclosure provided by mutual funds in the prospectus and other documents, and by intermediaries at the point of sale. It suggested that 12b-1 fees be identified in a manner that describes their purpose rather than being identified by reference to an SEC rule. The ICI further stated that any point-of-sale disclosure requirements should not create competitive disadvantages by imposing regulatory obligations only relating to mutual funds.
With respect to the current Rule 12b-1 responsibilities of boards of mutual funds, the ICI recommended updating or eliminating of the original nine factors devised to help boards evaluate 12b-1 fees, and/or eliminate the quarterly board reporting requirements.
The ICI strongly objected to suggestions made at the June 2007 SEC Roundtable on 12b-1 Plans that called for the fee to be "externalized" and thus more transparent, i.e., assessing it at the individual account level rather than deducting it from fund assets. The ICI believes that externalization would increase investors' tax costs, reduce the tax efficiency of funds, and require extensive overhaul of fund operating and recordkeeping systems.
Please click http://www.ici.org/new/07_sec_12b-1_com.html#TopOfPage to access the comment letter.