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SEC Proposal on Mutual Fund Distribution Fees

September 26, 2012

On November 5, 2010, CFP Board submitted a comment letter (Missing PDF) in response to the SEC’s comment period on proposed changes to mutual fund distribution fees.

In its comment letter on the SEC’s mutual fund distribution fees proposal, CFP Board expressed its support for the SEC’s decision not to eliminate any mutual fund share class structures. Investors should have the ability to obtain investment advice and purchase securities in different ways, whether by paying an explicit investment advisory fee, by paying for advice as part of the sales charges for a mutual fund or other security, or by choosing mutual funds from a supermarket or other platform. CFP Board believes it is necessary to allow for investor choice, and that the SEC’s proposal is a reasonable approach to providing choices among mutual funds.

CFP Board expressed support for allowing mutual funds to pay for distribution services out of fund assets, but did not express an opinion about whether 25 basis points is the appropriate amount for this fee.

CFP Board expressed support for permitting funds to deduct an ongoing sales charge subject to sales charge restrictions and an automatic conversion feature, but did not express an opinion about exactly what that fee cap should be. We recognize that in some instances, a financial services professional provides ongoing investment advice after the initial purchase of a mutual fund. However, we believe an ongoing sales charge that is capped at the maximum amount of an up-front sales charge is sufficient to pay for this continuing advice, rather than allowing a sales charge that continues indefinitely, as is currently possible with some C share class mutual funds. We do not believe the existing practice of some, but not all, mutual funds to have a class of shares pay a sales load indefinitely (e.g., C shares) is in the best interests of investors.

CFP Board believes that the key to enhancing competition and reducing costs in the mutual fund industry is to make it easier for investors to compare the products available from different financial services providers and the cost of purchasing those products. It is important for investors to be able to evaluate potential conflicts of interest before they purchase an investment company security. Rather than requiring additional disclosure as part of the trade confirmation after the transaction has already occurred, CFP Board believes the SEC should encourage better “up-front” disclosure at the point of sale.