Statutory and Regulatory Basis
For most of their history, 12b-1 fees have been widely used on a continuing basis as a substitute for sales loads and to pay for ongoing services that benefit fund shareholders. Though some investors prefer to buy mutual funds directly from the company sponsoring them, the majority of investors who invest in mutual funds outside of 401(k) plans today seek professional help from brokers and other financial intermediaries in making investment decisions. These financial intermediaries provide investors initial and ongoing assistance to help them achieve their financial goals. Intermediaries also perform various administrative, recordkeeping, and transfer agent services on behalf of funds.
Intermediaries can be compensated for these services in a variety of ways. Rule 12b-1 and the use of multiple share classes allows funds the ability to offer investors greater choice and flexibility in how and when to pay for these services.
Section 12(b) of the Investment Company Act
- Section 12(b): It shall be unlawful for any registered open-end company (other than a company complying with the provisions of Section 10(d)) to act as a distributor of securities of which it is the issuer, except through an underwriter, in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.
SEC Proposal and Adoption of Rule 12b-1
- SEC Proposal to Adopt Rule 12b-1 (1979) [Bearing of Distribution Expenses by Mutual Funds, SEC Rel. No. IC-10862, 44 Fed. Reg. 54014 (Sept. 7, 1979)]
- SEC Adoption of Rule 12b-1 (1980) [Bearing of Distribution Expenses by Mutual Funds; Final Rule, SEC Rel. No. 33-6254, 40-11414; 45 Fed. Reg. 73898 (Nov. 7, 1980)]