March 15, 2004
The desire to make changes in the mutual funnd industry is understandable in light of the publicity generated these days. But just like an iceberg, 90 of the problem is out of sight. The analysis of 12B-1 fees is an example. The average 12B-1 is .25 per year. For that .25 I am on call for all clients. Without the 12B-1 the small or inactive client would suffer because there is little incentive to service the account. I like 12B-1s because I know that I do not start over each year. I know I am building a business that will last for years. Many representatives I know would prefer lower first year commissions and an ongoing service fee in the later years. This would provide a continuity of service to all clients regardless of the size or activity of the portfolio. Reduce the front load and maintain a service fee,and the representatives that stay in the business will be the best, and the short-timers will get out.