If you’re like many advisors, a chunk of your paycheck comes from 12-b1 fees in some form or another. But chances are you’re not collecting those fees for marketing purposes, as originally intended back in 1980, when SEC rule 12b-1 was written. Today, service to clients is what most advisors who receive 12b-1 fees are getting paid for. And the SEC will be examining that disparity and other issues when it convenes a roundtable to discuss the future of rule 12b-1 next Tuesday, June 19, in Washington, D.C.

“We’ll be watching and listening closely,” says John Rafal, of Essex Financial Services,an RIA/BD in Essex, CT. Rafal says that of his firm’s roughly $12 million in revenue last year, about 20 percent came from 12b-1 fees. But Rafal says he either rebates those fees back to clients or deducts the cost from product prices. He’s quite clear on what the fee is really going towards: “It’s a service fee,” he says. From financial planning, to estate planning advice, to research and quarterly meetings and reports, Rafal says the fees allow his team to offer a higher level of service, a point he feels a lot of regulators seem to miss.

Indeed, Jeff Keil, principal of Keil Fiduciary Strategies, who will participate on the panel, says the original marketing intent of 12b-1s—“to help fund firms beef up flows”—has gone by the wayside. “Ninety-eight percent of the fee [goes to] sales and service today,” he says. Keil says the SEC panel will be closely watched because of the magnitude of the 12b-1 issue—asset management companies deducted $11.8 billion from fund assets last year to pay 12b-1 fees—and because there is a lack of consensus in the industry about what, exactly, needs to change.

Per an SEC release, the panel’s agenda will include the historical context of the rule’s adoption in 1980, how it has evolved since then and its current role, costs and benefits and “options for reform or rescission.” Keil is optimistic the rule will not be repealed but says Andrew Donohue, the head of the SEC’s division of investment management, has made it clear that “all options are on the table.”

If you have an opinion on the matter and would like the SEC to hear it, comments must be received before June 19th and can be submitted electronically, either by sending an email to rule-comments@sec.gov or using the Commission’s Internet submission form.)

Tom James, Chairman and CEO of Raymond James Financial, echoes a sentiment voiced by many in the industry: if the SEC gets rid of 12b-1 fees, it will ultimately hurt customers the most. “All the mutual funds would get switched over to wrap fee accounts and instead of 25 basis points, the customer would be getting charged 50 basis points,” says James. Or if these customers were transferred to asset-based fee accounts, they would likely be paying closer to 1 percent—four times what they typically pay today.

In addition, 12b-1 fees make it economically feasible for advisors to provide advice on smaller accounts, James says. But if they go away, and advisors begin charging asset-based fees instead, these smaller accounts may become too expensive for advisors to manage.

James thinks 12b-1 fees should just be accepted for what they are. They work well for both clients and advisors, he says, especially considering the growth of alternatives like fee-based products, where those fees are often rebated anyway. “What they need to do is reconsider the purpose and definition of the fee and call it a sales and marketing assistance and client advisory fee,” says James.

One UBS advisor with roughly $1 billion in assets under management says five to ten percent of his revenue comes from his 401(k) business, and today, plan sponsors pay him to handle those accounts with 12b-1s. “If they took the fee away we’d have to negotiate a hard-dollar fee with the plan sponsor, and certainly they’d be tempted to get a fee less than the 25 basis points,” he adds. He echoes James’ sentiments about small clients and says, in effect, he would no longer be able to handle accounts with less than $10,000 in assets.

But there are some reps for whom the fate of 12b-1 fees just isn't that big of a deal. One Royal Alliance rep says that if 12b-1s were to disappear it would have little impact on his clients because less than $1 million of his nearly $300 million in assets is in transaction accounts, and he rebates all of his 12b-1s to clients anyhow. He’s not convinced, either, that if 12b-1 fees went away, retirement plan platforms would raise their prices. “I know the 12b-1 fee knocks down the prices on these platforms. If the fees are gone, I don’t know if those companies would increase their prices or not. I just don’t.”

In the words of Chip Roame, the founder of Tiburon Strategic Advisors: “12b-1 fees are here to stay, whether the rule is abolished or changed in any way.” The fees are used primarily to pay brokers a trail for account service and to pay fund supermarkets for shareholder service, Roame says. “If the rule goes, the fee will get paid somehow. Are you going to tell Schwab they can’t get paid for selling mutual funds? And say the same to brokers? Good luck.”