What Are 12b-1 Fees?

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A 12b-1 fee is an annual fee that a mutual fund company charges to cover the costs associated with distribution of funds and shareholder services. It derives its name from a Securities and Exchange Commission (SEC) rule authorizing fund companies to charge this fee. It is usually paid out of the assets of the mutual fund or exchange-traded fund (ETF).

In this article, we expand on exactly what a 12b-1 fee is and why it matters for investors.

Definition and Examples of 12b-1 Fee

Mutual fund companies can charge 12b-1 fees to cover expenses pertaining to distribution of funds, as well as shareholder services. This is not a one-time fee, but a recurring charge to the investors in a fund.

Distribution services can include payment to brokers and other intermediaries who sell the funds or ETFs offered by the mutual fund company. This fee also covers the costs incurred on advertising, marketing, and printing and mailing of sales literature and prospectuses to new investors.

Shareholder services refer to payments made to teams who deal with investor queries about a mutual fund, as well as provide investors information about their investments, although shareholder services fees can also be paid outside of 12b-1 fees.

12b-1 fees are usually considered a “hidden charge” because they are paid out of the net assets of the fund.


The SEC allows a mutual fund firm to take the 12b-1 fee out of a fund’s net assets only if it has adopted a 12b-1 plan. A fund company that adopts a 12b-1 plan files it with the SEC, mapping out the distribution fee for different intermediaries based on the different share classes of the fund.

How Much Are 12b-1 Fees?

The Financial Industry Regulatory Authority (FINRA), a self-regulatory organization for brokers, limits 12b-1 fees to 1% of the net assets in a mutual fund.

This 1% comprises the distribution fee capped at 0.75% of net assets and shareholder services fee limited to 0.25% of assets.

You can review a mutual fund’s prospectus to view its entire fee schedule.

You’ll generally find the 12b-1 fee listed in a “Fund Fees & Expenses” category. In most cases, if a fund charges a 12b-1 fee, it will range between 0.25% and 0.75% of net assets. You can find a fund’s assets in its prospectus, most often under a “Fund Profile” category.

Here’s an example from mutual fund family Keeley Funds. In the company’s prospectus for its funds, it dedicates an entire section to 12b-1 fees.

Keeley Funds Small Cap Dividend Value Fund Prospectus on 12b-1 fees

The key sentences from the above excerpt are:

"Under this Plan, the fee is 0.25% per year of a Fund’s average net assets (calculated on a daily basis). Because these fees are paid out of assets of each Fund’s Class A Shares on an ongoing basis, over time these fees will increase the cost of your investment and may cost you more than paying other types of sales charges."

This tells you how much you’ll pay as a 12b-1 fee and warns you it will impact your return on investment.

Some funds issue summary prospectuses that include a table listing all fees, including 12b-1 fees. That often looks like this example of the same Keely fund, shown below:

Keeley Small Cap Dividend Value Fund Annual Fund Operating Expenses Table


A fund can charge these fees without a 12b-1 plan; however, it must include them in the “other expenses” category on the fee table it presents to investors.

12b-1 Fees vs. Other Mutual Fund Expenses

There are several other fees that investors in mutual funds can be subject to. 

Look at a fund’s expense ratio for a quick read on how much of your money goes to cover fees and charges.

The average expense ratio for mutual funds and ETFs in 2019 was 0.45%.

Typically, 12b-1 fees are accounted for under annual operating expenses for mutual funds, but you should also pay close attention to sales loads. Mutual fund companies can charge front-end or back-end sales load charges.

On the front end, you pay the charge out of your initial investment. On the back end, the mutual fund company will deduct the load charge from the proceeds of your sale of shares.

If you want a fund that does not charge a sales load, simply look for no-load mutual funds.

One of the biggest differences between 12b-1 fees and loads is the fact that loads are a one-time charge, paid either upfront (front end) or when you’re exiting the fund (back end). By contrast, 12b-1 fees are paid out of the fund’s assets each year that you remain invested in the fund.

What 12b-1 Fees Mean for Individual Investors

According to brokerage firm Charles Schwab, operating expenses that include 12b-1 fees are the most important cost consideration for investors if they intend to hold a mutual fund for more than a year because these costs are ongoing.

Because this fee is paid out of the net assets of the fund, it also has an impact on the return on your investment.

To decide on a mutual fund investment, consider the 12b-1 fees alongside the fund’s overall expense profile.

If you’re paying a hefty sales load and a 12b-1 fee, better options might exist, particularly in the large universe of no-load mutual funds.

It may also be a good idea to speak to your broker or financial advisor about 12b-1 fees when discussing mutual fund investments.

In recent years, the SEC has taken to task brokers who “placed their clients in mutual fund share classes that charged 12b-1 fees – which are recurring fees deducted from the fund’s assets – when lower-cost share classes of the same fund were available.”

One way to avoid 12b-1 fees and many other costs that come with investing in many mutual funds is to invest in funds that track broad based indexes such as the S&P 500.

Because these passive mutual funds require less management by a portfolio manager than an active fund, the fee schedule, including 12b-1 fees, tends to be lower. An actively managed fund might trade in and out of positions more often, thereby requiring a more hands-on approach and, in many cases, higher fees.

Key Takeaways

  • 12b-1 fees are a recurring charge paid out of the net assets of a fund.
  • 12b-1 fees lower your investment return from the mutual fund.
  • The SEC regulates 12b-1 fees and FINRA caps them at 1% of a mutual fund’s net assets.
  • A 12b-1 fee covers the expenses a fund incurs to assist shareholders and pay fees to brokers who sell shares of a mutual fund.
  • You can find a mutual fund’s 12b-1 fee, along with the remainder of its fee schedule and other relevant information, in the mutual fund’s prospectus.