Summary

(AP) If you’re like most mutual fund investors, you don’t have a firm understanding of the fees you’re being charged. And you may justifiably worry that you’re paying more than you should.

BOSTON (AP) If you’re like most mutual fund investors, you don’t have a firm understanding of the fees you’re being charged. And you may justifiably worry that you’re paying more than you should.

Such anxiety may soon be eased for the most vexing type of fees that fund investors pay.

They’re called 12b-1 fees, and they can cover everything from compensation for brokers selling the fund, to advertising and promotions, to services like mailing quarterly fund disclosures.

For starters, the Securities and Exchange Commission wants to do away with their clunky name, a legacy of the 30-year-old SEC rule that allowed funds to begin charging the fees.

But that’s the least of the changes that the SEC envisions. If it grants final approval after a 90-day public comment period, the rules will fundamentally change how investors buy funds.

The key changes:

Many long-term investors will no longer be stuck paying ongoing sales fees for decades, racking up higher costs bit by bit. This is critical, because now they can end up paying more than if they had paid an upfront sales charge, or load, when they bought into the fund.

Brokers could begin to compete on pricing by charging lower fees, much as they now compete on stock trade commissions.

Fund disclosures will be required to separate out what investors are paying brokers as ongoing sales charges, and what they’re paying for marketing and services.

The proposed changes, SEC Chairman Mary Schapiro says, are intended to provide clarity and fairness to a mutual fund marketplace that has become confusing and potentially anticompetitive.

The five SEC commissioners voted unanimously last week in favor of 12b-1 changes recommended by the agency’s staff.

Schapiro isn’t the first SEC chair to talk about overhauling 12b-1 fees. Some industry pros even find them confusing, because the fee revenue can be used in so many different ways beyond compensating brokers and other intermediaries like financial advisers.

These rules are a bold proposal that was long overdue, says Jay Baris, an attorney with the firm Kramer Levin Naftalis & Frankel, who represents investment professionals.

It’s been difficult to design a fee structure that will allow for plenty of mutual fund choices without being overly complex. Then there’s the need to fairly compensate the brokers who help investors choose and buy funds. They’re paid by the fund companies, which collect their own fees along with the broker commissions.

This system was put into place in 1980, when the SEC devised a new way to compensate brokers by allowing funds to charge 12b-1 fees. Increasingly, the fees have become a key source of revenue for the growing number of funds that attract new investors by not charging upfront, one-time sales charges known as loads.

Most funds charge 12b-1 fees, amounting to a total $9.5 billion last year. Even though some investors buy directly from fund companies without paying loads, most buy through intermediaries, such as brokers or financial advisers. The fees for the sale can be paid in a variety of ways, which are typically designated by the share class of the fund being purchased:

Class A shares: Typically charge 3 to 5.75 percent of the amount to be invested upfront, and assess lower annual expenses and 12b-1 fees.

Class B shares: Usually allow investors to avoid paying upfront fees. Expenses are covered through a combination of 12b-1 fees and a back-end load. That’s a sales fee that becomes due if you sell before a specified number of years, typically six or seven. If you stick around that long, your shares may convert to a class charging lower expenses.