Compliance July 18, 2007

SPARK Weighs In On 12b-1 Fees

Retirement services trade group The SPARK Institute has asked the Securities and Exchange Commission (SEC) to continue allowing mutual funds to pay 12b-1 fees to retirement services providers, but said that the fees should be disclosed to participants.
Reported by

SEC Chairman Christopher Cox has made no secret of the fact that he sees the use of 12b-1 fees as defunct and has revealed plans for the regulator to embark on a broad initiative to make the fees more transparent (See Cox Says 12b-1 Fees a “Sales Load in Drag”).

Larry Goldbrum, General Counsel of The SPARK Institute, argues in the letter to the regulator that the fees help make services “feasible and cost effective,” and that a decision to eliminate or limit the payments would result in retirement plan providers having to “make up any shortfalls by accounting for and trading mutual funds on a unitized basis, pushing the 12b-1 payment amounts outside of mutual funds.’

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Goldbrum further contends that the increased expenses would trickle down to affect net returns of the mutual funds, in turn making it more difficult to report and explain investment returns to plan sponsors and participants.

The SPARK Institute’s complete comment letter may be found on its web site at www.sparkinstitute.org.

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