By RON LIEBER
In today’s New York Times, our colleague Edward Wyatt has an article about the Securities and Exchange Commission’s efforts to rid the mutual fund industry of 12b-1 fees, which can cost investors hundreds or even thousands of dollars if they hang on to a sizable investment for long enough.
The S.E.C.’s proposal would limit the fees in a number of ways, and apparently, some lawyers who work for fund companies think this could lead to consumers getting less advice from their advisers.
I don’t buy it for a minute.
Here’s how the fund industry’s argument goes, per Mr. Wyatt’s article:
Robert M. Kurucza, a law partner at Goodwin Procter, which represents some of the largest fund companies, and who served as an assistant director of the S.E.C. division that oversees mutual funds, said that if the proposals were adopted, “they could have extraordinary ramifications in the marketplace for how mutual funds are sold and marketed.”
Not all of those ramifications are necessarily good, Mr. Kurucza said. In a world where investors are increasingly responsible for managing their retirement assets, intermediaries can give advice on asset allocation and performance. Limiting the amounts of money available to compensate those advisers could have the unintended consequence of limiting the advice available to investors, he said.
This is only true, however, if advisers can’t think of any way to make money other than by collecting fees from fund companies in exchange for pushing the fund firms’ high-priced investments on consumers.
There are plenty of financial planners who already work on a fee-only basis, meaning they make money only by charging customers directly for their services. You can pay these professionals by the hour or pay them a percentage of your assets under management each year or some other way.
Some advisers argue that it’s cheaper for many customers to let fund companies compensate the advisers for their time via mutual fund fees while those customers pay nothing for their advisers’ time. Perhaps. But the S.E.C. notes that some advisers are collecting fees on funds decades after they first sold them. It’s certainly possible that that continuing revenue stream could affect whether an adviser decides to move a customer out of those funds.
Over time, I think more consumers will gravitate toward paying simple, transparent fees for financial advice to people who earn no money from any of the firms that provide investments.
So how many of you know exactly how your financial adviser gets compensated? And how many advisers who collect revenue via these sorts of fees think the S.E.C.’s proposal is unfair or will lead to fewer people getting financial advice?
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