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Clean Shares, T Shares and More

Among the many steps taken by financial businesses to address the changes coming with the DOL fiduciary rule is the addition of a number of different share classes for mutual funds. We probably are all familiar with the A share (carrying an upfront load or sales charge), B share (deferred sales load), and C share (higher expense ratio annually with smaller deferred sales load) choices. What they all have in common is their sales charges. The antagonism for sales charges contained in the new rule is based on the goal of having the best interests of investors served by the financial industry and these “old” classes are seen as quite possibly failing to meet the new requirements.

So what has the financial industry come up with to address the new rule and its anticipated impact on investment options? First up is the new T (for transaction) share class. This new class attempts to meet the best interests requirement for advisers and brokers by charging investors the same sales load no matter which fund they purchase so that the adviser will not get paid more for recommending one fund over another. It is anticipated that this sales load will be roughly half of the typical charge for A shares. Of course, the fact that the adviser doesn’t make any more (or less) for the recommendation does not mean that the share is a good buy or will perform well or, bottom line, is in your best interests to buy.

Another new share class is the so-called clean share. This class of shares has no front or back end load, no distribution charges or 12b-1 fees, charging only for administration and investment management. It is thought these shares will be more transparent since any commissions or other charges must be separately stated and so more obvious to the prospective purchaser. Certainly, lower charges and more open disclosure of the costs are going to work in the investor’s favor as an informed buying decision is worthwhile. Only time will tell how well these new classes will work in the industry but they seem to be a step in the right direction.

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