Once again, the SEC is going to take a look (free registration required) at 12(b)1 and other distribution fees, making it a priority in the next few months. According to a Deputy Director from the Commission’s Office of Compliance Examinations and Inspections, the fees under scrutiny will include 12(b)(1), Sub TA, revenue sharing and conference support.
The SEC will be looking at what the payments are for, what services were provided and the oversight by Fund Boards. The Commission seems concerned that payments could be used to allow certain fund companies to gain preferential treatment and raise costs for investors. Regardless of the outcome, it seems likely that fund companies will have to provide more disclosure.
Many elements of the DC and 401(k) industries are fueled by the distribution costs paid by fund companies to record keepers and advisory shops. As advisor and record keeper margins get squeezed, fund companies are being relied on to pay more of the costs. Some argue that revenue sharing should be levelized to avoid giving any fund company a perceived advantage on the platform. Of course, if plan sponsors negotiated and paid for record keeping admin and advisory services, the issue would be moot — but that ship has sailed.
