12B-1 Fee

So along came the Investment Advisers Act of 1940, which basically recognized that mutual funds did, in fact, have expenses that were more than bonuses to the senior partners.

The 12b-1 fee system allowed a fairly set and standard amount of fees to be charged to customers, so that a given mutual fund could recoup the money it had to spend mailing annual reports and performance data and tax information and all kinds of other things to its customers.

The 12b-1 fee system was basically a pass-through set of charges, such that the customer paid for her own paperwork…incentivizing mutual funds to actually do a good job communicating with their constituency.