Mutual Funds
Bye-Bye B Shares
A sneaky way to charge loads appears to be on the way out.
By Steven Goldberg, Contributing Columnist
From Kiplinger's Personal Finance magazine, February 2005
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Some fund companies will no longer offer a class of shares that has often been linked to shady sales practices. The largest to announce that it will no longer sell Class B shares to new investors is Franklin Templeton. "Many of the other large fund groups will give them up," predicts Burton Greenwald, a fund consultant in Philadelphia.
The possible demise of B shares is good news for those who buy load funds through brokers or other advisers. With A shares, you pay an upfront fee, usually between 4% and 5.75%. B funds levy no front-end load, but usually carry a 1% annual charge -- in the form of a 12b-1 fee -- and a back-end load if you bail out early. B shares convert to A shares, which have lower annual fees, after five to eight years.
Unethical brokers have been known to tell clients that B shares are no-load. Also, A shares allow for discounts if you invest large amounts of money. B shares do not. In the past two years, regulators have charged several brokers with improperly selling B shares when clients would have been better off buying A shares because of volume discounts.
There appears to be no industry-wide trend to ditch C shares, which present the same potential for abuse. C shares typically levy annual 12b-1 fees of about 1% and a back-end charge of 1% that disappears after one year--and they never convert to A shares.