New Mutual Fund Rules?

On the same day the president signed the landmark financial-reform legislation, the SEC also announced some proposed rules for mutual funds that might benefit the individual investor. We're all familiar with 12b-1 fees, the charges added on to some mutual funds for marketing and distribution costs. As it stands, funds must disclose what they're charging in the way of 12b-1 fees, but the new rules would force them to break down those charges - how much is spent on advertising and broker commissions as opposed to distribution costs, for example.

Now, most investors aren't going to pore through a prospectus looking for how every dollar in a fund is spent. But more disclosure is always better, and the threat of this kind of thing becoming common knowledge would probably reduce some of the more exorbitant marketing fees being charged.

The rules also call for brokers to change the way they're compensated for selling mutual funds. Now, fund companies pay brokerage firms a percentage of their assets for selling their funds - which of course come out of the investors' assets. If the new rules are implemented, brokerage firms would start directly charging investors sales fees whenever funds are sold. As with the 12b-1 rule, the result would be more transparency in how investors are charged fees. That's always a good thing.