Question of the Week

12b-1 fees in mutual funds, are known as “asset-based distribution charges,” and sometimes called “Class C” shares. These are fees that are taken from all investor assets on a quarterly basis. Which of the following must approve these fees initially?

I. A majority of the non-affiliated board members
II. A majority of the outstanding shareholders
III. A majority of the fund’s board of directors
IV. A majority of the fund’s board of directors, including a majority of the non-affiliated board members

a) I, III, IV
b) II, III
c) I, II, IV
d) II, IV


The correct answer is b.

To initiate 12b-1 fee charges in a mutual fund, there must be a majority vote by the full board of directors and a majority vote of the outstanding shares (shareholders cast the votes--the shares vote). It is not necessary to have a majority of the non-affiliated board members approve the initiation of these fees. Side note: to continue 12b-1 fees, the charter of the fund may stipulate that either a majority vote of the board or the shareholders is all that is required.

Professionals FAQs
  1. Where can I look for a financial planner?

    References from trusted friends or family members can help you find a financial planner; however, keep in mind that your friends' financial situations and goals may differ from yours and, therefore, their planners won't necessarily be the best fit for you.The Certified Financial Planner (CFP) Board of Standards certifies financial planners and maintains an online list of certified financial planners on its CFP Board of Standards website.
  2. If I am looking to get an Investment Banking job. What education do employers prefer? MBA or CFA?

    If you are looking specifically for an investment banking position, an MBA may be marginally preferable over the CFA. The caveat here is that the MBA would most probably need to be from a Top-20 B-School.The Chartered Financial Analyst (CFA) is well worth considering if you (a) are aiming for an entry-level position in investment banking, and/or (b) cannot afford to shell out six figures for an MBA or have to settle for a lesser-known B-school.That's because in the investment banking field, most entry-level positions are at the analyst level.
  3. Can I still pass the CFA Level I if I do poorly in the ethics section?

    You may still pass the Chartered Financial Analysis (CFA) Level I even if you fare poorly in the ethics section, but don't count on it. The CFA Institute has long emphasized that ethics is a particular area of focus for it. The seriousness with which the CFA Institute views ethics is evident from the fact that for exam candidates with borderline total scores, performance on the ethics section can mean the difference between passing and failing the exam.
  4. Under the USA, registration as an IAR includes all of the following EXCEPT:

    Under the USA, registration as an IAR includes all of the following EXCEPT: A. Minimum net capitalB. Passing a qualification examC. Filing a consent to service of processD. Posting a surety bond The correct answer is "A", since only an IA would need to prove minimum net capital requirements.