American Funds gets SEC approval for clean shares

No distribution fees included

Jan 13, 2017 @ 12:12 pm

By John Waggoner

The Securities and Exchange Commission gave the green light Wednesday to the Capital Group to issue “clean shares” through its American Funds — a share class without any distribution costs, such as 12-b(1) fees.

The no-action letter to the management company of the American Funds will allow brokers to set their own commission on the shares, also known as F3 shares. In essence, the new shares will separate investment costs from distribution costs.

The SEC's letter was in response to a query from the Capital Group. In that letter, the company noted that the Department of Labor's fiduciary rules were causing funds to have difficulty in figuring out pricing for shares that would conform to the new rules. “Given that fund firms may not collaborate on pricing models due to concerns around antitrust violations, the industry is finding it difficult to coalesce around commission-based share class pricing structures that would work under the DOL Rule,” the fund group said in its letter.

Capital Group argued that its F3 shares would trade much like an exchange-traded fund, where brokers can set their own fees for transactions and services. “The proposed guidance would allow for a brokerage model where funds, ETFs, individual securities and other 'like' investment options could compete on returns and fees,” the fund company wrote. “The proposed model also preserves choice for investors who prefer to invest through a brokerage model and provides further transparency regarding the fees they pay and the associated services.”

The fund group asked for a narrowly tailored ruling from the SEC that would apply to Clean Shares. The SEC's letter stipulated that its ruling applied to CleanShares, given the proposed practices outlined in the Capital Group's query. Among those: Clean shares would have no distribution costs embedded in the share price, and that the fund's prospectus would have to disclose that the broker may charge a commission on the sale of the shares.

The new share classes, expected to debut later this quarter, will add to the American Funds' dizzying number of share classes. The company's largest fund, the American Funds Growth Fund of America (AGTHX), already has 18 share classes. The new clean shares may be cheaper for investors, depending on the fees their brokers add.

The clean shares will be the third commission-free share class offered by the American funds. F1 class removed the commission but kept trailing 12b-1 fees. F2 class shares removed the 12b-1 fee, but maintained the sub transfer agency fee.


What do you think?

View comments

Recommended for you

Sponsored financial news

B-D Data Center

Use InvestmentNews' B-D Data Center to find exclusive information and intelligence about the independent broker-dealer industry.

Rank Broker-dealers by

Does your pay stack up?

The Adviser Research Dashboard

Based on data collected through InvestmentNews' annual adviser research studies, this interactive, customizable tool allows you to view detailed data on compensation, staffing and financial performance practices from across the industry.

Learn more »

Featured video


The #MeToo movement and the financial advice industry

Attendees at the Women to Watch luncheon commend the #MeToo movement for raising awareness about the issue of sexual harassment and bringing women together.

Latest news & opinion

What the next market downturn means for small RIAs

Firms that have enjoyed AUM growth because of the runup in stocks may find it hard to adjust to declining revenues if the market suffers a major correction.

DOL fiduciary rule likely to live on despite appeals court loss

Future developments will hinge on whether the Labor Department continues the fight to remake the regulation its own way.

DOL fiduciary rule: Industry reacts to Fifth Circuit ruling

Groups on both sides of the fiduciary debate had plenty to say.

Fifth Circuit Court of Appeals vacates DOL fiduciary rule

In split decision, judges say agency exceeded authority.

UBS, after dumping the broker protocol, continues to see brokers come and go

The wirehouse has seen 14 individuals or teams leave and five join for a net loss of $2.4 billion in AUM


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print