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Rating:S&P highlights Closed Funds Levying 12b-1 Fees Not Rated 0.0 Email Routing List Email & Route  Print Print
Monday, August 4, 2003

S&P highlights Closed Funds Levying 12b-1 Fees

by: Sean Hanna, Editor in Chief

Fund rater Standard & Poor's today took a swing at fund firms that continue to charge 12b-1 fees even after they close their products to new investors. The New York City-based researcher said it found 139 closed funds with a total of 232 share classes still charging an 12b-1 fees.

S&P argues that closed funds should drop their 12b-1 fee because those funds no longer must market to bring in new shareholders. However, it also admits that many of the fund firms it spoke with justified the continued 12b-1 fees by stating that they remained open to existing shareholders.

"We spoke with a random sampling of fund companies imposing a 12b-1 fee on their closed fund and found that most consider the 12b-1 a necessary fee to charge since the fund remained open to existing investors," said Phil Edwards, Standard & Poor's managing director of Funds Research. "Standard & Poor's feels this is an insufficient explanation, especially in an environment dominated by single digit returns." Yet, in many cases, the funds also remain available to qualified plan clients. 12b-1 fees in those instances may be used to cover participant costs such as education and communications.

All together, S&P reported the 139 closed funds that still charged a 12b-1 fee charged an average of 62 basis points and that 74 of the funds levy the maximum 100 basis points allowed by the SEC. It also fingered the five fund firms with the most funds continuing to charge the fee.

Idex Mutual Funds lists 53 funds that are closed to new investments, yet charge a 12b-1 fee, claimed S&P. The other fund sponsors making its list were: Invesco Funds Group with 23 closed funds, ING Investments with 19, Dreyfus with 16 and General Electric Investment Corporation with 12.

A complete list of the closed funds charging 12b-1 fees is located at the S&P web site in Microsoft Excel format.  

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