By Mark Jewell, AP Personal Finance Writer
BOSTON (AP) — Many investors might skip over the line on their mutual fund disclosure statements that says, "12b-1 fee."
They might want to start wondering what's behind that label. These fees are the money that many funds collect to offset a variety of expenses, from advertising to broker's commissions. They can cut into investors' returns.
The fees, whose name is a legacy of the Securities and Exchange Commission rule that created them three decades ago, brought in $9.5 billion for fund companies last year. That amount is equal to 18% of all fund expenses, not counting sales charges, according to the fund industry's Investment Company Institute. The 12b-1 fees typically amount to about $2 a year for every $1,000 invested.
The SEC is questioning whether investors should be paying them. Chairwoman Mary Schapiro has asked her staff to present a recommendation on 12b-1s for the commission to consider this year. Schapiro's predecessors have studied possible 12b-1 changes, but there haven't been any overhauls.
Schapiro sounds serious. "Investors may have no idea these fees are being deducted, what services they are paying for, or who they are ultimately compensating," she said in a speech last month.Broadly, the SEC says 12b-1s are supposed to cover fund distribution, and in some cases, shareholder services. These expenses frequently aren't covered by the sales charges that many funds assess, or the management fees all funds charge for overseeing an investment portfolio.
A savvy investor may want to shop around and choose funds that don't assess 12b-1 fees — about one-third don't. But before you decide to sidestep those with 12b-1s, be sure you're not ruling out any funds that are a good fit for your investment needs.