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Rule 12b-1 and Intermediary Payments Resource Center
In 1980, the Securities and Exchange Commission (SEC) adopted Rule 12b-1 under the Investment Company Act of 1940. This rule permits funds to compensate brokers and other financial intermediaries out of fund assets for services they provide shareholders related to the distribution of fund shares. Under Rule 12b-1, a fund can pay intermediaries for distribution only pursuant to a 12b-1 plan that the fund’s board has approved.
12b-1 fees are reflected in the fund’s expense ratio and fully disclosed as a separate line item in the fee table near the front of each fund’s prospectus.
While funds only may use fund assets to pay for distribution pursuant to a 12b-1 plan, there is not a similar prohibition regarding funds using assets to pay for shareholder services. Shareholder services are not primarily intended to result in the distribution of fund shares (instead they are to service existing fund shareholders), and funds may pay for shareholder services either within or outside of a 12b-1 plan.
This resource center provides information and resources, including ICI research and analysis, on Rule 12b-1, 12b-1 fees, and other payments to intermediaries.
