If you thought there were enough mutual fund share classes already, just wait. The fund industry is expecting a flood of new share classes this year, sparked in part by the Department of Labor's fiduciary rule.
To set the stage: the Investment Company Institute, the mutual fund trade association, counted 8,100 mutual funds at the end January and 25,236 share classes, or about three share classes per fund.
But that tally doesn't include the rollout of new T shares and so-called clean shares this year. Morningstar estimates that funds will introduce
3,800 new T shares this year, and a growing number of fund companies are looking to introduce clean shares as well.
T shares are essentially low-load funds — typically 2.5% — with declining loads based on breakpoints. Most will have a 0.25% 12b-1 fee. T shares will have the same sales charge across all types of funds, rather than the typically higher loads for stock funds and lower loads for bond funds. They will also do away with many of the additional payments to distributors.
Clean shares make a clean break with distribution fees and simply charge for managing assets. Advisory firms can add their own fees on top for their services.
Morningstar expects that funds that offer old-style, upfront load A shares will offer companion T shares as well. So far, 32 fund companies offer T shares, including BlackRock, Columbia and Morgan Stanley, according to FUSE research. Another 22 have filed for T shares.
No similar tally exists for clean shares, although the American Funds, Janus and MFS offer them. Much of the debate swirls around the
fate of the DOL fiduciary rule. "We are evaluating all of our share class arrangements in light of the needs of our broker-dealer distribution partners and the broader marketplace," said Jon Goldstein, spokesman for Putnam. "Clean shares are certainly part of that conversation."
Franklin Templeton (BEN) is also considering clean shares. "We are still evaluating a clean share class as several of our clients have asked for it, regardless of the fate of the DOL rule, to be used in their advisory accounts and possibly for use in conjunction with the recent SEC 22d clarification response to the
American Funds letter," said company spokeswoman Lisa Gallegos.
"If you look at the American Funds, they are clearly saying, 'We want to get into a different model," said Whitfield Athey, CEO of Delta Data. "They were designed to compete with ETFs on a
Betterment platform. Eventually, commission-based funds will be a thing of the past."
