The 12b-1 fees were eliminated by the firm’s board following a recommendation from Gabelli Funds, LLC, the mutual fund’s investment adviser. Even though the fees have now been officially waved, Gabelli said in a news release that the firm has voluntarily waived receipt of the 25 basis point fees provided for in the fund’s distribution plan.
The ABC Fund had been closed to new investors who did not have an investment in any Gabelli Fund prior to October 1, 2002. However, as of March 1, 2004, the fund reopened to new investment in anticipation of increasing merger and acquisition activity, the focus of the fund’s investment strategy. New investments into the fund will be limited to new investors with a minimum initial investment of $50,000 and can only be made through the fund’s principal distributor – Gabelli & Company, Inc – or the fund’s transfer agent.
Even though Gabelli Funds has voluntarily waived 50 basis points of its advisory fee since April 1, 2002 – due to a low level of merger and acquisition activity and a subsequent buildup of cash in the portfolio – the current advisory fee of 50 basis points will remain until the ABC Fund becomes more fully invested. Gabelli Asset Management manages approximately $27.6 billion in investors’ assets.
Gabelli’s move may signal the beginning of a trend among mutual fund companies that are seeing a threat to the very existence of 12b-1 charges in their overall management fee structure. Last month, a bill was introduced in the US Senate calling for the elimination of 12b-1 fees altogether (See Senate Fund Reform Bill Would Kill 12b-1 Fees ) . Originally meant to help funds cover their marketing and distribution costs, senators sponsoring The Mutual Fund Reform Act of 2004 (MFRA) called the fees a “bonanza” for brokers and advisors but haven’t lowered shareholder fund costs as they were originally intended. As proof of this contention, the Senators said since 1980, when the fee was instituted, the fund industry’s total assets have increased by some 60 times, but costs have increased 90 times.
In response to the Senate action, the US Securities and Exchange Commission (SEC) also took a stand on the issue, proposing limits on 12b-1 fees (SeeSEC Gives Tentative OK to 12b-1 Limits, Disclosure Rules ). Announcing the proposal, SEC Chairman William Donaldson called 12b-1 “a rule that maybe has outlived its usefulness.”
“Rule 12b-1 fees and directed brokerage quietly generate a lot of money for people in the fund and broker-dealer industries, and unlike some of our other proposals, this one is going to hit them where it hurts,” Donaldson said. The SEC will take a final vote after receiving the public comments.
« IRS Issues Stock Rollover Rules