Understanding 12B-1 Plans

What is a 12B-1 plan?

A 12B-1 plan is a mutual fund arrangement that funds the marketing and distribution of fund shares through intermediaries (broker-dealers, financial advisors, and distribution platforms). It defines how distributors and intermediaries are compensated for selling and servicing the fund.

How it works

Mutual funds create 12B-1 plans to pay intermediaries for distribution and sometimes shareholder services.
Plans are most common for open-end mutual funds that offer multiple share classes (e.g., Class A, B, C).
Compensation under a 12B-1 plan is funded from the assets of the mutual fund and is reflected in the fund’s expenses.

Sales commissions vs. 12B-1 expenses

Sales commissions (sales loads) are fees paid to brokers for executing transactions. They can be:
Front-end loads (paid when shares are purchased)
Back-end loads/contingent deferred sales charges (paid when shares are sold)
Level loads (ongoing charges)
Sales loads are associated with specific share classes and are separate from the fund’s annual operating expense ratio.
12B-1 expenses are annual fees paid from fund assets to compensate distributors and to cover marketing and distribution costs. Some funds also use these fees to pay advisors periodically while an investor holds the fund.

Fee structure and limits

Regulators generally limit 12B-1 fees to a maximum of 1.00% of fund assets per year.
Typical 12B-1 fee ranges are roughly 0.25% to 1.00% annually.
Funds often balance sales loads and 12B-1 fees across share classes: share classes with lower upfront sales charges may carry higher 12B-1 fees, and vice versa.

Disclosure and governance

Mutual funds must disclose sales load schedules and 12B-1 expenses in the fund prospectus and registration materials.
Any changes to a 12B-1 plan or its fee structure must be approved by the fund’s board of directors and disclosed in an amended prospectus filed with the Securities and Exchange Commission (SEC).

Key takeaways

12B-1 plans fund a mutual fund’s marketing, distribution, and sometimes shareholder service expenses.
Fees under these plans are paid from fund assets and can reduce investor returns over time.
Sales loads and 12B-1 fees vary by share class; understanding both is important when choosing a share class.
Full disclosure in the prospectus and board approval are required for 12B-1 plans and any subsequent changes.

Sources

U.S. Securities and Exchange Commission — guidance on mutual fund classes, 12b‑1 fees, and prospectus fee tables.