May 31, 2007
I think it is a good idea to evaluate the Rule 12b-1. While it has strayed from the original purposes there is a place for an ongoing "service fee" to compensate the long term obligation of the original NASD licensed representative or any subsequent representative hired by a mutual fund holder to offer service, recordkeeping, and ongoing advice.
In my view the best alternative is very simple modification of existing share class arrangements to a lower front-end commission with an ongoing "trail" service fee. Some compies do that now. Ex. 3.50% front-end commission charge, .50% ongoing service fee. And call it that in the prospectus. Full disclosure is always important and people understand that there are costs for services.
There is a very large sector of Americans who can neither afford highly sophisticated fee-based asset management platforms nor try to wade through the investment process alone without professional guidance. The commission style mutual fund should continue to exit, but the old style of large front-end commission without a service fee component has led to far more abuses due to unethical redemption and re-buying than anything compared to 12b-1 or even the "B" share controversy.