August 4, 2010
If you limit the 12b1 fees an advisor can receive, your are only causing more problems. Once the advisor is not receiving anything, what incentive does he or she have to continue to service the client? If the advisor is going to continue to provide service, then the only way of being compensated is to move to another fund.(which may not be in the best interest of the client) This new law is only encouraging the wrong behavior. If the only compensation to an advisor was through 12b1's, and no up front charges, there would be no reason to change mutual funds unless it was in the best interest of the client. If all mutual funds, annuities, UIT's, all had some sort of 12b1's,with out any caps, with no upfront charges, the advisor would never move/change investments unless it was the right thing to do.
First the regulators approved A shares, then B shares (which now have been taken off the shelf, then C share (which they are trying to modify) mutual funds. The regulators actions just cause reactions. All for the wrong reasons.
SOLUTION: Get rid of them all together.
The financial service industry seems to always be a target. If the same rules and regulations applied to the clothing industry and retail industry, with full disclosure of pricing, no one would buy anything. If the price tag on a shirt said, "Price to consumer, mark up or profit to the store, cost of the shirt to the store," you would never buy anything. Disclosure is good, rubbing it in the clients face without the benefit of what they are getting, will just turn them away from what they need to do to save and invest for retirment.