False Advertising: The Truth About 12b-1 Fees

"Overhaul 12b-1 fee regulation!" isn't exactly a rallying cry that will unite the investing masses.

People don't pay attention to obscure Securities and Exchange Commission bylaws. However, tell investors that the amount they paid in 12b-1 fees rose to $9.38 billion in 2002 from $1.23 billion in 1990, and they'll sit up and listen.

In the confusing alphanumeric soup of fees and share classes, probably no item is more misunderstood than the 12b-1 fee. The SEC adopted 12b-1 fees in 1980 as a way to let struggling funds use a small portion of their assets, on a short-term basis, to kick-start the marketing of the funds and counter redemptions, which in theory would lead to more assets, economies of scale and lower overall costs. ...