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SEC May Cap, Split 12b-1's

In what some in the industry are heralding as a backhanded acknowledgement of 12b-1 fees, the Securities and Exchange Commission is considering putting a cap on the controversial level-loads.

But some industry executives are balking at the notion, contending a cap on the fees would hurt mutual fund investors because other fees will increase as a result. Or, funds will have to scramble to impose conversions. This is part of a new measure that the SEC is considering, Investment News reports. The second part would split the fees into administration and distribution, and sales costs.

Toward the beginning of his term, current SEC Director of the Division of Investment Management Andrew J. "Buddy" Donohue threatened to look into eliminating the fees altogether. That debate, if it has occurred at the SEC, has at least fallen off the radar for the past year.

As a result of the SEC's renewed focus on merely adjusting, renaming or capping 12b-1 fees-rather than outright eliminating them-commented Morningstar Managing Director Don Phillips, the mutual fund industry "should be doing cartwheels."

Depending on the fund complex, between 1% and 20% of assets under management are held in C Share classes that charge 12b-1 fees. Some firms' C Shares convert to F Shares or other share classes that forgive the level loads after, often, 10 years.

Thus, some dissonant voices in the industry argue that the whole 12b-1 fee argument is no longer as big a deal as it once was. "At the end of the day," said Sam Campbell, director of research for Financial Research Corp., "C Shares are not in decline, but, certainly, as a percentage of [fund groups'] overall business, they aren't huge."

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