12b-1s to custodians

Good Morning.

We are an independent RIA that has model portfolios. Within our portfolios, we have at least one mutual fund that creates a 12b-1 fee, that our custodian keeps (the RIA does not see any compensation from these mutual funds). The mutual fund offers a no fee share class as well, but our custodian charges a $25 transaction fee for these. Since they are in our model portfolios that are periodically rebalanced, these transaction fees could potentially add up to a large amount. We want to make sure that we are seeking best execution, as well as disclosing all conflicts of interest on our end. We would also like some thoughts on how we could go back to our custodian and ask them to waive the transaction fee, from a compliance and new DOL rule standpoint.

I would love some insight/opinions of the best way we should handle this to ensure our fiduciary duty to our clients.

Thanks in advance.


  • Replace the fund. In today’s world it is highly probable that there are several
    comparable funds without the 12b-1 fee. If this change is
    resisted, the logical skeptical CCO response is that whoever is designing this
    model portfolio has an independent (i.e. polite for undisclosed) reason to include this fund
    in the portfolio.

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