Share and Share Alike
Share and Share Alike
Idiomatic expression:
For members of a group, equal portions of or equal access to tangible or intangible goods, entitlements, or obligations—i.e., each person’s share like each of the other shares.
Charles Dickens David Copperfield, ch. 31:
[O]n his decease, the principal to be equally divided between Peggotty, little Emily, and me, or the survivor or survivors of us, share and share alike.
Mutual Funds
No two shares are alike.
One of the most arcane areas of mutual fund investing is the “share class.”
What are Class A or Class B or Class C shares? What are Institutional share classes? Why do some funds have 8 or 9 classes?
Where did all the share classes come from?
In the beginning there was ( and still is ) the Land of Commissions. In the Land of Commissions, you pay a fee. You are known as “the investor.”
How much you pay depends on the share class.
The Land of Commissions made sense when the only way for a broker or adviser to get paid was through sales charges.
Be careful in the Land of Commissions.
“Oh look – there is the front-end load, headed for extinction.”
“Over there, see, the elusive back end load”.
“12b-1 fees everywhere we look, like weeds, you can’t get rid of ‘em .”
Today, there is really no reason for you to pay high sales fees to be invested in a mutual fund.
You pass through the Land of Commissions on your way to the Land of Investments .
In the Land of Commissions and be on the look out for the share classes that charge additional fees.
Now on to the Land of Investments
The Land of Investments in this story is the land of Mutual Funds.
There are different paths to investing in a mutual fund. Not all paths are the same.
Class A shares might cost more than Class B shares. Class B shares might let you in for free but will charge you when you leave. Class C shares might charge you a front-end load and a 12b-1 fee.
If “you” represent an institution, you may pay the lowest fee on a percentage basis, but you must pony up a million dollars minimum [1]
No matter what share class you are in, all share classes invest in the same mutual fund.
Paying different fees to end up in the same place as the people who pay less than you, or more than you, doesn’t quite make sense.
It doesn’t make sense until you discover the “Arrangement” .
The Arrangement is how mutual funds are marketed and sold.
Mutual fund companies need a way to market their funds efficiently. One way to accomplish this is to pay financial intermediaries a commission .
Financial intermediaries are the brokers and advisors who recommend to you, the investor, different mutual funds to invest in.
Blackrock manages over 1,000 mutual funds and exchange traded funds. Each fund can have multiple share classes and different fees.
What Blackrock ( and other mutual fund companies) does is come to an agreement with other financial institutions to sell Blackrock funds. In a recent Statement of Additional Information on one Blackrock fund, over 200 financial intermediaries are compensated to distribute Blackrock funds.
This is not at all unusual in the mutual fund world. Financial intermediaries are companies you are familiar with like Charles Schwab; Fidelity Brokerage Services; Vanguard and many more financial institutions.
I am a Schwab customer. As a Schwab customer, I have many options in terms of buying a mutual fund. Blackrock mutual funds are available on the Schwab platform.
This is where it gets tricky. For me to buy a Blackrock fund on the Schwab platform, I will have to choose a share class.
If I buy a Class A share, I will be paying a sales charge ( front-end load). The sales charge is determined by Blackrock (the investment manager).
The sales charge is paid to Schwab who in turn pays the broker or advisor.
If you are using an advisor or broker, and you are paying a fee for their services, you should NEVER be in a share class that has front-end loads, back-end loads or 12b-1 fees.
Unless the fees can be waived.
Otherwise the broker or advisor is getting paid twice.
The way to avoid this maze of who gets paid for what, is to look for funds with no loads and no 12b-1 fees.
If you own mutual funds , the ticker symbol will show you what share class you are invested in.
The takeaway is this:
The first decision you make when you are structuring your portfolio is to decide what asset classes to invest in. Then you decide which sectors to invest in.
Once you have made the asset class and sector decisions you look at mutual funds and exchange traded funds that meet your criteria.
The good news is, there are many “no load” and no “12b-1 fee options available.
Look for those before you invest.
Mutual Fund and Share Class Resources:
https://www.investor.gov/additional-resources/general-resources/glossary/mutual-fund-classes
https://www.investor.gov/research-before-you-invest/research/researching-investments
https://www.sec.gov/reportspubs/investor-publications/investorpubsinwsmfhtm.html#Classes
https://en.wiktionary.org/wiki/share_and_share_alike
[1] Minimum investments for institutional clients are set by the mutual fund company. Institutional investing is typically in the millions of dollars , so a one million dollar minimum is not an issue.
This website is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation for any security, nor does it constitute an offer to provide investment advisory or other services by The Modest Economist LLC.
