July 27, 2010
At present, investors expecting to hold shares for long periods (usually 5 years or more) might save money by purchasing Class A instead of Class C. But if Class C shares automatically convert once cumulative sales charges reach the Class A front-end load, Class A shares offer no possible advantage over Class C shares. Class C shares will be cheaper for short holding periods, and no more expensive for long holding periods.
In sum, by limiting cumulative sales charges on Class C shares to be no greater than the sales charge on Class A shares, the proposed rule eliminates any incentive for a rational investor to purchase the Class A shares. Recommending Class A shares to clients would then appear inconsistent with fiduciary responsibilities.
Under this rule, I expect that some fund companies will eliminate Class A shares and apply the (proposed) NASD 6.25% maximum cumulative charge to their Class C shares. Other companies might eliminate Class C shares and keep Class A shares. If adopting the rule means that we end up with fewer share classes, probably just one for each fund, the SEC will have simplified the investors decision-making process, though also limited investor choice to some extent. Thank you.