August 27, 2010
More on Class A shares (get rid of them) and merits of "Class C shares"
It sounds like the Inv Cos. are the loudest voice regarding the 12b1 fee debate... I'm still trying to get Class A shares killed - and the "C share with breakpoint" concept on the table - and offer the concept below as a way to appeal to the interests of the Inv Cos. - as they'd likely fight against losing Class A shares as they have the "golden handcuffs" which "lock in" investor dollars to their Fund Family.
So my hope is they can offset that with higher Expense Ratios on what I call "Class 1" shares... The concept also offers "non-dealer" and "dealer" shares - which enables investors to still choose between "advisory" and "non-advisory" models...
Here's my thinking...
Another element to add - for the investor - is breakpoints on Expense Ratios (as the SEC is equally unhappy that investors receive no benefits of "economies of scale" on Management Fees, etc. - not just Commissions / 12b1 fees.) I would also have "non-dealer sold" (no 12b1) versus "dealer sold" (with 12b1) shares...
Here's what I'd propose:
Class 1 up to 250k - highest Management Fee - e.g. 1%
Class 2 from 250k to 1MM - e.g. 0.75%
Class 3 over 1MM - e.g. 0.50%
Each class would have a "non-dealer" Class with NO 12b1 fee - and a "dealer" class with a 12b1 fee of 1% - which the Broker dealers would be able to "discount" based on their own fee schedule... So, technically 6 share types in all under this example...
Gives economies of scale to the investor at BOTH "Management Fee" and "Advisory fee" levels - and is a more fair model. I think this could be a win/win/win...