Investment Funds Get Green Light to Keep Selling Shares
Published Date: 4/8/2025
Notice
Summary
The SEC is asking to keep collecting info about Rule 12b-1, which lets investment funds spend money to promote and sell their shares. This rule affects fund managers and shareholders by requiring clear plans and approvals before spending on marketing. No big changes or costs are expected, but the paperwork review helps keep things transparent and fair.
Analyzed Economic Effects
3 provisions identified: 2 benefits, 1 costs, 0 mixed.
Industry Compliance Burden Estimates
The Commission estimates about 5,246 funds (and about 250 fund families) are subject to Rule 12b-1 information collections, with a total annual hour burden of 106,250 hours. Commission staff estimates that about three funds per year prepare a proxy related to Rule 12b-1 adoption or material amendment at a cost of $30,000 each, for a total annual proxy cost of $90,000.
Written 12b-1 Plans and Board Approvals
Funds that use Rule 12b-1 must have a written plan that describes how distribution will be financed, and the plan must be approved by the fund's board and the independent directors. If adopted after a public offering, the plan must also be approved by a vote of at least a majority of the fund's outstanding voting securities; material amendments and material increases in spending require director and shareholder approvals. Boards must review quarterly reports and the plan and related records must be preserved for six years.
Prohibition on Paying Distribution with Brokerage Commissions
Rule 12b-1 prohibits funds from paying for distribution of fund shares using brokerage commissions on portfolio transactions and requires funds using broker-dealers that both sell shares and execute portfolio trades to adopt policies to prevent broker selection from being influenced by promotional efforts. These provisions are intended to prevent conflicts where brokerage activity might be steered to pay for share distribution.
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