From: Wes King
Before 1980, virtually all distribution costs were paid as part of a fundís front-end load. As funds adopted 12b-1 plans and expanded distribution payment options, front-end loads declined sharply, while 12b-1 fees absorbed a larger portion of the distribution costs. By 1998, for example, 12b-1 fees amounted to almost 40 percent of the total distribution cost of load funds. Overall, the decline in loads more than offset growth in 12b-1 fees, leading to the substantial decline in distribution costs. Recent research by the Investment Company Institute found that since 1980, the average cost of equity mutual funds has decreased 43 percent; bond funds, 41 percent, and money market funds, 35 percent. (See Frequently Asked Questions About Mutual Fund Fees, Investment Company Institute.)
Because of Rule 12b-1 many investors currently have the ability to transfer existing accounts without liquidating their investments. This gives them the freedom to seek out the service and advice they are paying for without unnecessarily burdening them with additional transaction charges. In short, if they are not being serviced by their initial RR, they can transfer the account via a broker/dealer change. Without service fees available on the accounts, RRs would be reluctant to take on new accounts that they would not be paid to service. Unhappy investors would be stuck with their initial RR even if that individual was no longer providing any service.
Some commentators have noted that not every shareholder paying the fee receives the service for which it was intended. These individuals however, have the ability to pursue and in fact demand that service. Their failure to do so should not cause the services that are provided to many to be removed.
Finally, many registered representatives have structured their businesses to provide the services paid for by 12b-1 fees and that ongoing revenue provides an important revenue source for them. To abolish that source of revenue and to substantially reduce the value of the businesses they've worked diligently to build, would be unfair and foolish. Their business model is one that should be emulated, not punished.