Washington (May 13, 2004) -- The Financial Planning Association voiced its opposition this week to a Securities and Exchange Commission proposal that would single out 12b-1 fees for deduction directly from mutual fund shareholders accounts.

The SEC proposed amending a rule to shift 12b-1 fees that are paid to broker/dealers and investment advisers from being an asset-based charge to a direct deduction from shareholders' accounts. Under the SEC's plan, investors would pay the fees through an automatic redemption of fund shares and the amount of the payment would be shown on their quarterly statements.

In its comment, authored by FPA director of government relations Neil Simon, the FPA said “by harshly illuminating 12b-1 fees with a laser-like beam, the approach suggested by the SEC is likely to shroud the context in which these fees appear. By directing disproportionate attention on 12b-1 fees, investors may lose sight of the more important issue, i.e. the total costs and expenses of the investment and the expense ratio.”

The FPA said that any requirement that fees be deducted directly from investor accounts "will lead to complicated tax liabilities for investors” and that the additional record keeping requirements would add to “an already considerable administrative burden.”

“Let there be no doubt,” the FPA stated, “elimination of 12b-1 fees will not lead to lower fund expenses… Were 12b-1 fees to be eliminated, whether directly or as the effect of the approach discussed above, there would be numerous unforeseen and unintended consequences,” including higher front-end sales loads and less service for smaller investors.

In a separate comment, the FPA lent its support to a SEC proposal that would require mutual funds to impose a 2 percent fee on any redemption of fund shares within five days of their purchase.

-- WebCPA staff

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