NAIFA Position: NAIFA strongly supports the continued payment of fees under SEC Rule 12b-1.We further support the concept of clearer, more thorough disclosure of mutual fund fees and expenses to mutual fund investors, in order that investors can clearly understand both the amount and purpose of such fees and expenses.

Many NAIFA members are also registered representatives who market and service mutual funds. Up-front compensation for the initial sale of the product is typically paid in the form of a "sales load" which comes off the top of the client's initial investment. In return for providing ongoing service and continuing advice to clients regarding their investments, "reps" receive trailing compensation much in the same way that they receive renewal commissions on the life insurance policies they sell. This trailing compensation is typically paid under a written plan adopted pursuant to SEC Rule 12b-1.

The amount of this compensation is relatively modest; on a $10,000 investment, the annual 12b-1 fee equals 25 basis points, or $25. NAIFA members who market mutual funds earn their 12b-1 fees by providing much-needed service and advice to their clients. These fees provide substantial value to investors--in exchange for a small annual payment, they have access to a financial services expert to answer their questions and address their concerns. Without their advisor, investors would have nowhere to turn to (except for perhaps a stranger at the end of a 1-800 phone number) when they needed some reassurance in a shaky market or assistance in rebalancing their portfolios, understanding their investments and the investment choices available. If 12b-1 fees were eliminated, advisors would be forced to charge their clients either hourly or asset-based fees to compensate the advisor for the time spent servicing their clients' needs. The net effect is that while the client might save a small amount in 12b-1 fees he or she would end up paying a much larger amount in hourly or asset-based fees to receive the same service.

What Can You Do: Although the SEC has not yet issued a formal proposal on this issue, it has invited the public to comment on the issue of 12b-1 fees. You are strongly urged to submit comments to the SEC opposing any efforts to eliminate or restrict the payment of 12b-1 fees. You can submit comments electronically by visiting NAIFA's Legislative Action Center at capwiz.com/naifa, selecting "Comments to SEC on 12b-1 Fees", then filling out the required information at the bottom of the page. The sample comments below will automatically be forwarded to the SEC.

In the alternative, you may submit your comments by e-mail to the SEC at rule-comment@sec.gov (Please reference "File No.4-538" in the subject line of your e-mail); or three copies of written comments should be sent to:
Nancy M. Morris, Secretary
Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C.20549-1090.
Re: File No. 4-538

Sample Comments: It always has a greater impact if you use your own words when submitting comments. The following sample language can be used as the basis for your comment letter or, if you prefer, as the text of your email:

Dear Ms. Morris:

I am a licensed insurance professional and mutual funds salesperson.

In return for providing ongoing service and continuing advice to my clients regarding their investments, I receive trailing compensation much in the same way that insurance agents receive renewal commissions on the life insurance policies they sell. This trailing compensation is typically paid under a written plan adopted pursuant to SEC Rule 12b-1.

The amount of this compensation is relatively modest; on a $10,000 investment in a mutual fund's "A" shares, the annual "12b-1 fee" that is paid for providing ongoing service equals 25 basis points, or $25. Investors receive substantial value for these fees--in exchange for a small annual payment, they have access to a financial services expert to answer their questions and address their concerns. Without their advisor, investors would have nowhere to turn to (except for perhaps a stranger at the end of a 1-800 phone number) when they needed some reassurance in a shaky market or assistance in rebalancing their portfolios, understanding their investments and the investment choices available.

I believe the elimination of 12b-1 fees would do considerable harm to those investors who need and want ongoing investment planning advice and counsel. A significant majority of my clients expect our office to be available and to respond quickly to a variety of questions regarding their investments. I have never received complaints from my clients about the small amounts they are charged for the services I provide to them. My clients expect me to be compensated for helping them achieve their long-term financial goals. If 12b-1 fees were eliminated, while the client might save a small amount in 12b-1 fees he or she would end up paying a much larger amount in hourly or asset-based fees to receive the same service.

For these reasons, I urge the SEC to reject any proposal to eliminate or restrict the payment of 12b-1 fees to registered representatives for providing continued service to their clients. Thank you for your consideration of my views on this subject.