Morningstar analyst Chris Traulsen, who is not calling for the abolition of the 12b-1 rule, nevertheless says that the use of the charge has had unintended consequences. "Despite the original intent of the 12b-1, it doesn't seem to be protecting investors. Expense ratios are not coming down," Traulsen says.

His evidence goes beyond expense ratios-it is an examination of how these fees have been used. Almost two-thirds of the $10 billion in 12b-1 fees is now going to compensate brokers, some 32% is devoted to fund administrative costs and the remainder for advertising and promotion. That's according to a 2003 Perspective column at the ICI Web site.

"It appears that the use of 12b-1 fees by mutual funds has far exceeded the scope of the rule authorizing them," Traulsen adds. Nevertheless, despite pointing out the problems of the fee, Traulsen doesn't favor any dramatic solutions. He says there is an effective case that can be made for the 12b-1 fee.

"Some investors need advice from a sales rep. Good advice will help them from jumping in and out of funds and avoid mistakes," he notes. He points to studies that show the average investor only holds a fund for about 18 months, not nearly long enough to gain the benefits of a full cycle. Paul Schott Stevens, an ICI outside counsel, recently made this same point and also argued that the fee is just another way of paying for a fund.

Stevens, in testimony to Congress, said that, "In many cases, investors are receiving professional advice or other services from financial intermediaries when investing in mutual funds; Rule 12b-1 has made it possible for funds to provide investors with a choice of how and when to pay for these services."

Louis Stanasolovich, a fee-only planner at Legend Financial Advisors in Pittsburgh, says that he sometimes uses funds with 12b-1 fees. That's because "we use funds from many different platforms, and the fee is hard to avoid."

He thinks the 12b-1 fee rule should be amended, not abolished. "The average person needs help with funds. This is one way to provide such help," Stanasolovich says. Still, he concedes there are some abuses. He says regulators should end the use of 12b-1 fees in funds that are closed and will likely not see dramatic asset growth.

Without rising asset bases, he notes, the investors in these funds will be stuck with 12b-1 fees that will never decline and might increase. He also believes that the SEC should not allow funds to use directed brokerage, or placing trades through firms that sell their funds as a means of rewarding them.

Morningstar's Traulsen suggests that 12b-1 abuse is coming from the lack of effective disclosure of practices that, at times, hurts investors. And that generates controversy for the fund business.

T. Rowe Price, for one, which applies 12b-1 fees to some of its funds with advisor class shares, is re-evaluating the use of this fee. "We are reviewing this area," says a T. Rowe Price official. Many other fund families, no doubt, are waiting to see how far regulators want to go in reforming these controversial charges or maybe, given the times, jettisoning them.