U.S. Securities & Exchange Commission
SEC Seal
Home | Previous Page
U.S. Securities and Exchange Commission

The following comment on Letter Type E,
or variations thereof, was submitted by
5 individuals or entities.

Letter Type E:

Talking Points for Comment Letters

The Propose Rule in Release No. IC-26356 would prohibit the use of brokerage commissions, including 12b-1 fees, to finance the distribution of mutual funds. Among other things, the Commission requested comment regarding consequences to fund shareholders and brokers who sell fund shares in the event of rescission of Rule 12b-1 under the Investment Company Act of 1940. Below are significant points of concern for independent contractor broker-dealers that you can incorporate into your firms' comment letter.

  1. Rule 12b-1 Has Allowed Shareholders to Receiving Ongoing Professional Services - A very positive development has occurred over the years since the adoption of Rule 12b-1 which we believe is of substantial benefit to fund shareholders, particularly those shareholders with relatively smaller mutual fund investments. The receipt by broker-dealers and their representatives of 12b-1 fees has enabled these shareholders to receive ongoing professional services which would otherwise not be available to them or only available at additional costs to these shareholders. These services include not only administrative services, such as providing, changing or correcting account information, but also substantive assistance through the provision of analysis and financial planning for these shareholders.

  2. Rescission of Rule 12b-1 Would Increase Incentives to Churn - We note that the Commission has received numerous comment letters from brokers indicating that, without the 12b-1 Fees they receive they would not be able to provide these services to their fund shareholder clients at all or without imposing charges for these services. The incentive to receive commissions on transactions in the absence of Rule 12b-1 fees also likely would result in reduced attention paid to fund shareholders after the sales as well as possible increases in transactions in accounts.

  3. Rule 12b-1 Aligns Shareholder and Broker Interests - FSI believes that the interests of fund shareholders are best served by aligning the interests of the broker with the interests of their fund shareholder clients. This is best achieved through the receipt of Rule 12b-1 Fees as opposed to incentives for transaction based commissions or the need for additional charges to fund shareholders for these valuable services.


These Talking Points were prepared pro bono by the law firm of Blackwell Sanders Peper Martin LLP in St. Louis, MO (www.blackwellsanders.com) as a service to the Financial Services Institute. Attorneys John R. Short and Daniel A. Peterson were the primary drafters. The Institute is grateful for their assistance.


Modified: 06/21/2004