Not mentioned here yet. I'm not American and I dunno how the fee
structures work there but their regulator is proposing changes. This was
emailed to me in one of my emails from a fav blogger. He must have American
investors that follow him.
His description of the share classes is pretty okay, though the levels
he gives as examples or ranges seem a bit off. For example, he says
that A shares have front loads of 6.25% to 8.5%. The range is wider
than that and it also doesn't mention breakpoints. By way of easy
examples (two of the largest funds in the world, both of which are
available in multiple share classes:
Growth Fund of America A shares have a 5.75% load
PIMCO Total Return A shares have a 3.75% load
And breakpoints are reductions in those loads when folks invest larger
amounts up front (or commit to adding larger amounts over certain time
periods). Say FundX has a front load of 5%, it may have only a 4% load
on investments between $25,000 and $50,000, and it may have a 3% load
for investments greater than that. (Example numbers from SEC answers
page about breakpoints).
Nevertheless, he gives a passable description of how load funds with
typical A, B and C classes of shares work, and makes the point that
different share classes may be the most cost effective for different
investors and their behavior. He doesn't mention the availability of
no-load funds, but that's a different issue, I suppose.
Also, I, for one, would prefer that he didn't use the term
"financial advisor" and instead stuck with what I believe is the less
misleading term "broker" or "salesperson", but alas, we seem to be stuck
with salespeople using the term "financial advisor" now.
I do like the summary of the proposed changes. No more "12b-1" fees,
but instead, much more honestly labeled "ongoing sales charges" and
"sales and marketing fees". And the apparent death of the C class,
which is probably a good thing.
Here's another article talking about the proposed changes:
Not surprisingly, the reaction is mixed - folks love to claim to be in
favor of more clarity and labels for things which reflect what they
are -- but then some of those same folks start fear-mongering that
making this kind of change is going to hurt the little guys (and it's
only a small coincidence that it helps the folks selling product to
those little guys). Like this, from the ICI (which the article doesn't
mention is the national association of US investment companies - ie. not
a disinterested organization...):
A 2005 study by the ICI found that about 40% of 12b-1 fees went to
pay advisers for initial sales, while approximately 52% of the fees
were being used by fund companies to provide ongoing support to
clients. The ICI says eliminating 12b-1 fees would get rid of any
incentives advisers have to provide clients with investment advice.
Hopefully, renaming the 12b-1 fees and making the thing a bit more
transparent may help remind folks how much they actually are paying for
the advice and give them an incentive to weigh out just how much they
think that the advice they're getting (if they actually are getting any)