The professional association of fee-only financial advisers said it “applauds Securities and Exchange Commission Chairman Mary Schapiro for her recent comments about reviewing the appropriateness of 12b-1 fees in mutual funds.”

Schapiro has said recently that she has asked for recommendations about 12b-1 fees in 2010 (“SEC to Make Recommendations on 12b-1 Fees, Target-Date Funds”). “We must critically rethink how 12b-1 fees are used and whether they continue to be appropriate,” she said, speaking at the Consumer Federation of America 21st Annual Financial Services Conference.

NAPFA agrees with that statement. “The purpose of these fees is to offset the marketing and distribution costs incurred by mutual fund companies. However, when you peel back the layers you see that some mutual fund companies are making a profit on 12b-1 fees,” said NAPFA Chairman William T. Baldwin, in a statement.

NAPFA said it continues to recommend the following in order to promote more transparency around 12b-1 fees:

• renaming 12b-1 fees to be more precise and descriptive (i.e. “brokerage firm compensation” or “brokerage firm reimbursement for account maintenance expenses”);
• disclosures of a mutual fund’s “total fees and costs,” including 12b-1 fees, reflected in quarterly account statements;
• point-of-recommendation and point-of-sale disclosures to help advisers and brokers fully disclose the expenses and “hidden costs” of pooled investment vehicles at the time of recommendation and the time of sale.

“Fees associated with investments must be treated like an ‘open book’ that is easily understood by all potential investors. Without clearer disclosure, consumers may not be able to make the most educated decision possible,” said Baldwin.