Mutual funds that include a 12b‑1 fee have higher expense ratios (annual cost paid by the investor) than those that do not. Since 12b‑1 fees are essentially a marketing fee to entice brokers to promote their fund over others, investors are paying more money even though a cheaper alternative likely exists. In fact, the SEC completed a study that shows 12b‑1 fees DO NOT increase performance, and thus have no net benefit to investors. (2)
Brokers are incentivized to recommend mutual funds with 12b‑1 fees, even though cheaper alternatives exist, because they will receive a higher commission for the sale. This is a clear conflict of interest.
A comprehensive study by the SEC showed that 12b‑1 fees do not improve the performance of a mutual fund. Bottom line, mutual funds with 12b‑1 fees negatively impact future retirement savings.
Since 12b‑1 fees are charged as a percentage and simply added to a fund’s total expense ratio, investors with larger portfolios (more assets) pay more to invest in the same fund as someone with less assets. The more you invest, the more you pay.