The U.S. Securities and Exchange Commission (“SEC”) has recently proposed regulations that would limit fund sales charges and increase disclosure requirements under Rule 12b-1.  Rule 12b-1, adopted under the Investment Company Act of 1940, permits mutual funds to use a portion of fund assets to pay for the cost of promoting sales of fund shares, effectively eliminating sales load charges.

To better reflect the premium investors place on the various services provided by broker-dealers, insurance companies, and other intermediaries, the proposal would allow fund managers to offer classes of shares that could be sold with sales charges set at competitively-established prices.  For those shares, the SEC would provide relief from restrictions that currently limit retail price competition for distribution services.  However, this might be difficult for some insurers due to the fact that variable annuity funds generally do not contain contingent deferred sales loads.

The SEC is seeking comments by November 5, 2010 about whether it should treat variable annuity funds differently from other funds.

For more information, see the full text of the SEC’s proposal here.