Investors are flocking to mutual funds that allow them to invest now and pay commissions later.

But fund companies that offer these so-called back-end loads face a tough question: How do they finance the commissions that brokers demand up-front?

Now, after six years of deliberation, the Securities and Exchange Commission finally appears ready to update the rules for back-end load funds.

The development could be especially important for banks, whose mutual fund customers have shown a strong preference for back-end load funds.

The changes, expected by yearend, are expected to make it easier for companies that sell mutual funds to finance the commissions they pay brokers.

The SEC is proposing a straightforward procedure for fund companies that want to add back-end loads to their mutual funds. Now, they must seek exemptions from SEC rules before offering the option, a costly and time-consuming process.

In another key change, the proposed rule would shift responsibility for covering commissions from fund sponsors to shareholders. Instead of charging shareholders an annual fee, the mutual fund manager would be able to take the money directly out of fund assets.

Fund companies have had: trouble getting loans to cover commissions because of uncertainty over repayment, said George-Ann Tobin-Dew, a managing director at Deutsche Bank, New York.

If the money can be drawn from the shareholders' assets, repayment is "much more assured," she said.

Deutsche Bank is one ofab0ut a dozen banks that are active in providing financing for mutual fund companies. "Fund managers have very small balance sheets," Ms. Tobin-Dew said, "so if they have a large amount to finance, they may run into problems."

Banks face a special problem. Regulators frown on banks' financing commissions for funds they manage, so most rely on outside distributors.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.