NAPFA Applauds SEC Effort to Rethink 12b-1 Fees
ARLINGTON HEIGHTS, IL, December 22, 2009 -- The National Association of Personal Financial Advisors (NAPFA), the country's leading professional association of Fee-Only financial advisors, applauds Securities and Exchange Commission Chairman Mary Schapiro for her recent comments about reviewing the appropriateness of 12b-1 Fees in mutual funds.
In a Wall Street Journal article titled "Will '12b-1' Fees Ever Stop Bugging Investors?" (Jason Zweig, December 19, 2009), Chairman Schapiro is quoted as saying, "We must critically rethink how 12b-1 fees are used and whether they continue to be appropriate." NAPFA agrees.
"The purpose of these fees is to offset the marketing and distribution costs incurred by mutual fund companies. However, when you peel back the layers you see that some mutual fund companies are making a profit on 12b-1 fees," said NAPFA Chairman William T. Baldwin, JD.
In an Opinion Letter to the SEC in July 2007, NAPFA commented on the use of 12b-1 Fees and outlined specific recommendations for creating greater transparency. In the Opinion Letter, NAPFA pointed to two main areas of concern.
First is the need for Enhanced Descriptors and Disclosures of 12b-1 Fees to help consumers understand the role 12b-1 fees play in mutual fund investing. NAPFA recommended the following:
- Rename 12b-1 fees to be more precise and descriptive (i.e. "brokerage firm compensation" or "brokerage firm reimbursement for account maintenance expenses")
- Disclosures of a mutual fund's "total fees and costs," including 12b-1 fees, should be reflected in quarterly account statements
Second is the need for Point-of-Recommendation and Point-of-Sale Disclosures to help advisors and brokers fully disclose the expenses and "hidden costs" of pooled investment vehicles at the time of recommendation and the time of sale.
"Fees associated with investments must be treated like an ‘open book' that is easily understood by all potential investors. Without clearer disclosure, consumers may not be able to make the most educated decision possible," concluded Baldwin.
About NAPFA
Since 1983, The National Association of Personal Financial Advisors (NAPFA) has provided Fee-Only financial planners across the country with some of the strictest guidelines possible for professional competency, comprehensive financial planning, and Fee-Only compensation. With more than 2,100 members across the country, NAPFA has become the leading professional association in the United States dedicated to the advancement of Fee-Only financial planning. For more information on NAPFA, please visit www.napfa.org.
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